Jefferson Smurfit Group plc - Company Profile, Information, Business Description, History, Background Information on Jefferson Smurfit Group plc

Beech Hill
Dublin 4

History of Jefferson Smurfit Group plc

The Jefferson Smurfit Group plc is the world's leading paper-based packaging group, having expanded from its origins in the Irish packaging industry. In addition to packaging, the group also has significant operations in paper bags and recycled newsprint. Jefferson Smurfit and its associated companies--which include the U.S.-based Jefferson Smurfit Corporation, 46 percent of which is held by the group--have a total of 400 facilities operating in more than 20 countries. About 60 percent of group sales are generated in Continental Europe, 21 percent in Ireland and the United Kingdom, 14 percent in Latin America, and seven percent in the United States. The Jefferson Smurfit Group is the fourth largest company based in Ireland.

Early History

The history of the company began with a young man from England making good in Ireland. Jefferson Smurfit, the son of a shipyard worker, was born in Sunderland, in northeast England, in 1909. His father died when he was ten years old. He became an apprentice salesman in a large department store at 14; he once said that life had made him into a little old man by that age.

In 1926 he accepted his uncle's offer of work in the tailoring business in St. Helens, Lancashire. Eight years later he moved to Belfast and opened his own tailoring business, James Magee & Sons Ltd., after marrying a local woman. The priest who conducted his wedding introduced him to the box-making business in Dublin. The priest had become involved with a factory there through one of his parishioners. The priest noticed Smurfit's keen business sense and asked the young man to act as an advisor. Smurfit saw the potential of the business and turned his attention to learning more about the technology of box-making. Meanwhile the tailoring business was expanding rapidly, and soon Smurfit owned four shops. He acquired full control of the Dublin box-making factory in 1938 and poured more of his energies into that business, giving up his tailor's shops and moving permanently to Dublin.

After 1939, when World War II broke out in Europe, the materials for box-making became much harder to find. Smurfit was able to keep his business going because he adapted the technology and his products to meet the demands of wartime. An example of this adaptation was the production of thick paper with straw in it for use in Irish schools. Because of the scarcity of paper and packaging during the war, Smurfit was able to capitalize on the overwhelming demand. The company concentrated on corrugated box production and had two paper-making machines working at full capacity. He had good relations with the trade unions and was proud that there were no strikes. By 1950, his Dublin factory was five times its initial size and producing eight times the original turnover. His sons, Michael and Jefferson Jr., were brought into the business at this date; accordingly, the company was renamed Jefferson Smurfit & Sons Ltd.

Michael, the eldest of Jefferson Smurfit's four sons, started on the factory floor, as Jefferson Jr. did later. Their father insisted that they join the appropriate union. Both went on to specialize, Jefferson Jr. in sales, Michael in company administration. Michael then took the opportunity to continue studying management techniques in Canada and the United States. After completing his training he ran a corrugated box factory with another brother, Alan, in his father's hometown, St. Helen's, returning to his father's company in 1966 as joint managing director with Jefferson Jr.

Rapid Expansion through Acquisitions in the 1960s and 1970s

The 1960s were a period of considerable expansion for the company. In 1964 Jefferson Smurfit & Sons Ltd. became a public company quoted on the Dublin Stock Exchange. Smurfit acquired Temple Press Ltd., a manufacturer of cartons and boxes, in 1968, and then took its first steps outside its original area of business when, in 1969, it acquired Browne & Nolan Ltd., a printing, packaging, publishing, and educational supply company. The parent company was now large enough to be quoted on the International Stock Exchange in London. Jefferson Sr. realized that his son Michael should be given more incentive to stay with the company and not become a potential rival. In 1969 he was appointed deputy chairman just as the company began to look seriously at acquisitions beyond the United Kingdom. In 1970 the company doubled its size with the purchase of the Hely Group of companies, which were involved in radio and television distribution, educational and office supplies, and packaging. Two years later the continuing expansion of the Smurfit businesses was symbolized in a change of name, to Jefferson Smurfit Group Ltd. Michael Smurfit brought the corrugated box factory in St. Helen's into the new group. The group concentrated a great deal of effort on its overseas expansion plans. It acquired the British carton making and printing company W. J. Noble and Sons in 1972. A year later its purchase of the print and packaging division of the U.K. firm Tremletts Ltd. brought plants in the United Kingdom and in Nigeria into the group. But the American market proved to be the most lucrative of its overseas ventures. Its 40 percent investment in the paper and plastic manufacturing firm Time Industries of Chicago, in 1974, gave it a foothold in the United States. It increased this initial investment to 100 percent in 1977.

Jefferson Smurfit Sr. died in 1977, at the age of 68. Michael succeeded him as chairman and Jefferson Jr. took over as deputy chairman. Their younger brothers moved up too, Alan to head United Kingdom sales and Dermot Smurfit to become managing director of the paper and board division. Their father left them a company that was beginning to diversify and internationalize itself in earnest yet continuing to lay stress on its base in Jefferson Sr.'s adopted homeland.

In 1968 Jefferson Sr. had seen the acquisition of Temple Press as an act of faith in the future of the Irish economy. The new chairman did not abandon this faith. The group carried on investing in Ireland, by acquiring, for example, Irish Paper Sacks Ltd.; Goulding Industries Ltd., maker of plastic film and sacks; and half the equity of the Eagle Printing Company Ltd. The more companies Jefferson Smurfit acquired, the more raw materials it needed. It decided to sell 49 percent of its corrugated box interests in Ireland and the United Kingdom to the Swedish paper company Svenska Cellulosa Aktiebolaget in return for a guaranteed supply of kraftliner. The sale also provided cash for further expansion abroad. Jefferson Smurfit acquired 51 percent of the Australian company Mistral Plastics Pty Ltd. in 1978. In 1979, it paid US $13 million for a 27 percent share of the Alton Box Board Company. At the time this was the largest investment by an Irish company in the American economy. It increased to 51 percent five months later.

U.S. Investments Highlight 1980s Acquisitions

The Jefferson Smurfit Group established itself as a major supplier of print and packaging in the United States in the 1980s. In Ireland it bought a small stake in the Woodfab group, the largest user of native timber and a significant presence in the Irish forestry sector. But Smurfit saw its greatest potential in the American market, where there have never been tight restrictions on foreign ownership or investment. Smurfit's method, a relatively cautious one, was to purchase a minority holding of an American company, observe its profits rising, and then move to 100 percent ownership. Thus the 27 percent holding in the Alton Box Board Company, acquired in 1979, formed the bridgehead for complete acquisition in 1981. And, in a variation on the same technique, in 1982 Smurfit formed a 50-50 joint venture to take over the packaging and graphic arts divisions of Diamond International, then bought out the partner's shares to gain full control in 1983.

Clearly, the group's long-term strategy of becoming an international competitor was coming closer to realization and Michael Smurfit was earning his reputation as a canny businessman. In 1983 shares in the American wing of the group, the Jefferson Smurfit Corporation, were floated on the market, generating US $46 million for further investment. The group then decided to expand into a new area of business, setting up a joint venture with Banque Paribas, known as Smurfit Paribas Bank Ltd. Jefferson Smurfit Jr. left the group in 1984, because of ill health, and his two younger brothers were appointed joint deputy chairmen. The following year, the fiftieth since the company's founding, was marked by re-registration as a public limited company. After achieving considerable success in its purchases of packaging companies, Smurfit acquired the Publishers Paper Company, based in Oregon, in 1986. This company supplied newsprint to such well-known papers as the Los Angeles Times. It was renamed Smurfit Newsprint Corporation and continued to supply several newspapers. The same year, in its largest deal yet, Smurfit set up a joint venture with Morgan Stanley Leveraged Equity Fund to pay Mobil US $1.2 billion for its subsidiary, Container Corporation of America (CCA), which produced paperboard and packaging, and in 1987 it purchased outright the manufacturing operations of CCA on the European continent and in Venezuela. The group thus more than doubled the value of its American holdings and moved into manufacturing in mainland Europe for the first time.

The second half of 1987 was a difficult time for the Smurfit family. First, Jefferson Smurfit Jr. died at the age of 50. He had contributed a great deal to the group's expansion through his expertise in sales and marketing. Then, like many other companies, Smurfit lost an enormous amount of value in the stock market crash in October. The value of its shares fell by more than half, but since demand for paper products remained steady it was just a question of riding out the storm.

In 1988, Dublin marked its millennium as a city, and Jefferson Smurfit Group, with its strong ties to the Irish capital, played a part in the celebrations by donating the Anna Livia Fountain in memory of Jefferson Smurfit Sr. Anna Livia, symbolizing the River Liffey flowing through the city to the sea, is a leading character in James Joyce's novel Finnegan's Wake. The group also contributed to the restoration of the Mansion House, the residence of the lord mayor of Dublin, and sponsored a Millennium Science Scholarship, to be awarded to a doctoral student specializing in high technology. Other Smurfit activities in 1988 included the establishment of Smurfit Natural Resources to continue its own private afforestation program in Ireland and the purchase of the Spanish packaging firm Industrial Cartonera, as well as 30 percent of Papelera Navarra, also based in Spain. Adding to these a 35 percent stake in Inpacsa, in 1989, gave the group interests in four paper mills, eight corrugated box plants, and 20 percent of the paper and packaging market in Spain.

In 1989 the group's publishing division grew with the launch of a new weekly newspaper, the Irish Voice, in the United States, where it also had an interest in the magazine Irish America. The Irish Post in the United Kingdom increased its circulation and Smurfit Print in Ireland produced more computer manuals. In America, an industrial dispute at Smurfit Newsprint Corporation lasted more than seven months and cost the company about US $25 million in profits. The group was also affected by lengthy strikes in the packaging industry in Italy. Latin American operations were slowly expanding. Smurfit Carton de Colombia and Smurfit de Venezuela put much effort into researching and developing the genetic enhancement of eucalyptus trees. Researchers believed that eucalyptus trees could be harvested in five years rather than the normal eight years. This was done by clonal reproduction, producing the fastest growing commercial trees in the world, from which a good quality uniform pulp can be manufactured. The Colombian company also produced writing paper, using a mix of different species of hardwood found in the tropical forests. By 1989, Smurfit Latin America had substantially more than 20 percent of the paper and board market in Venezuela and Colombia. The Latin American companies in the group provided opportunities for further education to their employees. In Colombia, for example, the company offered training in farm and forest tending as well as elementary schooling for children in the country areas near Smurfit timberland.

In 1989 the group made heavy use of junk bonds to restructure its American operations, which had accounted for about 65 percent of its profits in 1988. A 50-50 joint venture between the Smurfit group and the Morgan Stanley Leveraged Equity Fund created a new private holding company, SIBV/MS Holdings, for most of the group's subsidiaries in the United States. The reorganization generated US $1.25 billion and boosted the value of the group's shares by 50 percent. The group next decided to continue to expand north of the U.S. border, and it purchased 30 percent of PCL Industries Ltd., a Canadian company specializing in the conversion of plastics, with its own interests in the United States. The group also formed a partnership with the Canadian firm Tembec, Inc. to build a bleached lightweight coated mill in Quebec. Meanwhile, Smurfit International, the European division of the group, added to its operations the German company C.D. Haupt, a major paper-recycling mill, placing Smurfit in a strong position to profit from new opportunities in reunited Germany and in Eastern Europe. More Italian firms such as Ondulato Imolese, an integrated corrugated manufacturer, and Euronda, producer of corrugated cases and sheets, also joined the group.

By 1990 the Jefferson Smurfit Group had established itself as the largest gatherer and consumer of waste paper in the world, and it completed the purchase of Golden State Newsprint Co. Inc., which was renamed Smurfit Newsprint Corporation of California, and Pacific Recycling Co. Inc. As environmental awareness became commercially viable the group began to build up its recycling division by acquiring several existing units and announcing its intention to invest in a newsprint production unit, using scrap paper, in New York State.

In the United States, as in Latin America, Smurfit tried to involve itself within the community. It provided special programs for its employees, such as training at the Smurfit Technical Institute, and sponsored young children in Fernandina Beach's Literacy Program. In Ireland, too, some of the Irish universities were endowed with chairs and financial support for academic projects, of which the leading example is the Michael Smurfit School of Business at University College, Dublin.

By the beginning of the 1990s the Smurfit Group was producing a diversity of goods, from presentation boxes for Waterford crystal to takeout pizza boxes, and it continued to diversify further. It formed Nokia Smurfit Ltd. in a joint venture with Nokia Consumer Electronics, which distributes television, video recorders, and satellite equipment in Ireland and is a division of the Finnish company Oy Nokia Ab. It bought back its 49 percent interest in Smurfit Corrugated Ireland from Svenska Cellulosa and bought another 24.5 percent of U.K. Corrugated, boosting its ownership to 50 percent. One of its subsidiaries in the United Kingdom bought Texboard, a manufacturer of paper tubes. The group aimed to extend its already diversified board manufacturing and conversion business. It also purchased another U.K. firm, Townsend Hook, a leading producer of corrugated paper cases and coated papers, which gave Smurfit more than 20 percent of the corrugated case industry in Britain.

In 1991 Jefferson Smurfit added to its recycling business with the acquisition of several French companies, such as Centre de Dechets Industriels Group (CDI), the second largest waste paper company in France, and the Compagnie Generale de Cartons Ondules, an integrated mill and converting operation. In addition, it bought the Lestrem Group, which specialized in manufacturing solid board, accounting for about 20 percent of the market in France. It also set up a new subsidiary, Smurfit France.

The Smurfit Group carried diversification still further by deciding to invest in the leisure business in Ireland. Its activity in this area included the RiverView Racquet and Fitness Club, Waterford Castle Golf and Country Club, and the new development of the Kildare Hotel and Country Club.

Major Mid-1990s Acquisitions in Europe

In the mid-1990s Jefferson Smurfit turned to Continental Europe for acquisitions, beginning with France. In a deal that doubled the company's European operations, Jefferson Smurfit in late 1994 purchased the paper and packaging unit, Cellulose du Pin, of France's Compagnie de Saint-Gobain for IR £684 million (US $1.04 billion). Cellulose du Pin brought with it operations in France, Italy, Spain, and Belgium and manufactured recycled paper, corrugated boxes, coated woodfree paper, and paper bags. Following the acquisition, Jefferson Smurfit assumed the top position in the European corrugated industry.

To held fund the purchase, the company turned to its U.S. operation, taking it public once again, with Jefferson Smurfit Corporation reemerging as a public company. About IR £155 million (US $248 million) was raised through the offering, after which the Jefferson Smurfit Group retained a 46.5 percent stake in Jefferson Smurfit Corporation.

Additional European acquisitions quickly followed that of Cellulose du Pin. In May 1995 Jefferson Smurfit paid FrF 452 million for Les Papeteries du Limousin of France, an independent corrugated packaging firm with capacity of 220,000 metric tons of recycled containerboard. The purchase enabled Jefferson Smurfit to cancel plans to build a new mill in France. The following month saw the company make its first move into Scandinavia, with the IR £68 million (US $109 million) purchase of a 29 percent stake in Munksjö, a Swedish producer of bleached pulp, specialty papers, and board. Also acquired in 1995 was a 27.5 percent stake in Austria-based Nettingsdorfer, a producer of paper and board, with interests in corrugated container operations.

These 1995 moves, coupled with the 1994 acquisition of Cellulose du Pin, meant that Jefferson Smurfit had quadrupled its Continental European operations in less than two years. Further, Continental Europe had become the Jefferson Smurfit Group region generating the most revenue, surpassing the Ireland/United Kingdom region for the first time.

Always looking for new opportunities, Jefferson Smurfit made a few inroads into Asia in 1995. In May Jefferson Smurfit Corporation formed a joint venture in China, which soon thereafter bought a controlling interest in a linerboard mill near Shanghai. In December the Jefferson Smurfit Group formed a joint venture, called Smurfit Toyo, with the New Toyo Group of Singapore. Smurfit Toyo planned initially to manufacture folding cartons in Singapore, Hong Kong, and China. Jefferson Smurfit's approach to Asia was clearly a cautious one, though the company had a long-term goal of being an important player in the region.

Although Jefferson Smurfit's financial results fluctuated some in the mid-1990s thanks in part to the cyclical nature of the paper industry, the group's position was generally considered strong because of its geographic diversity and highly integrated operations (which tended to mitigate the effects of the industry's ups and downs). With its successful acquisition track record and the likelihood of more deals in the coming years, Jefferson Smurfit faced a bright future of continued growth.

Principal Subsidiaries: Cartón de Colombia, S.A. (67%); C.D. Haupt Papier-und Pappenfabrik GmbH & Co., K.G. (Germany); Inversiones Isica, C.A. (Venezuela); Jefferson Smurfit Italia, S.r.l. (Italy); Smurfit Capital Funding plc; Smurfit Cartón y Papel de Mexico, S.A. de C.V.; Smurfit España, S.A. (Spain); Smurfit International B.V. (Netherlands); Smurfit International France S.A.; Smurfit Investments U.K. Limited; Smurfit Ireland Limited; Smurfit Mercurius Verpakking B.V. (Netherlands); Smurfit Packaging Corporation (U.S.A.).

Additional Details

Further Reference

Brown, John Murray, "High Prices and French Input Boost Smurfit," Financial Times, August 24, 1995, p. 20.Byrne, Harlan S., "Jefferson Smurfit Corp.: The Paperboard Producer Plans More Acquisitions," Barron's, March 27, 1989, p. 39.------, "Paper De-Cycler," Barron's, August 7, 1995, p. 21.Cordell, Valerie, The First Fifty Years, Dublin: Jefferson Smurfit Group, 1984.DeKing, Noel, "Smurfit Moves to the Top through Acquisitions, Skilled Management," Pulp & Paper, December 1988, p. 110.Du Bois, Peter C., "Irish Alchemy: The Acquisitive Smurfit Group Turns Paper into Sizzling Profits," Barron's, August 28, 1995, pp. MW7-MW8.Hargreaves, Deborah, "US Flotation Boosts Jefferson Smurfit," Financial Times, September 29, 1994, p. 22.Hollinger, Peggy, and Buchan, David, "Smurfit To Double European Operations," Financial Times, August 3, 1994, p. 17.Klebnikow, Paul, "Who Needs Trees?: There's Always the Sunday New York Times," Forbes, June 26, 1989, pp. 108, 110, 114.Loeffelholz, Suzanne, "Equity Is Blood: Why Michael Smurfit's Bedroom Walls Are Lined with Spreadsheets," Financial World, April 3, 1990, pp. 96, 98.

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