1 Crown Way
Constar is a packaging solutions leader, designing and manufacturing innovative methods for customers to address their production and marketing challenges.
Based in Philadelphia, Pennsylvania, Constar International Inc. is a major global manufacturer of polyethylene terephthalate (PET) plastic containers for the food and beverage industries. The publicly traded company is especially strong in the soft drink and water container segment, or conventional PET, and is looking to grow its custom PET business, which includes containers for hot-fill beverages, food, juices, teas, sport drinks, new age beverages, beer, and flavored alcoholic beverages. The company possesses a number of advanced packaging technologies needed to make custom PET bottles, such as OxBar O , an oxygen-scavenging technology that helps protect oxygen-sensitive products. Major customers include PepsiCo, Coca-Cola, and ConAgra. Constar maintains 15 plants in the United States and four in Europe.
Lineage Dating to 1927
Constar's corporate ancestry started in 1927 with the establishment of Chattanooga Glass Co. in Chattanooga, Tennessee, which was licensed to produce green-glass bottles for Coca-Cola bottlers. Chattanooga Glass became a subsidiary of Dorsey Corp., which diversified into the trailer truck business and added a restaurant chain. Dorsey went public in 1969. In 1970 the company became involved in plastic containers when it acquired Atlanta-based Sewell Plastics Inc., which provided the basis for Constar's current business. The company was founded in 1963 by Charles K. Sewell, who stayed on to run the operation that produced blow-mold polyethylene containers for milk and food products. Dorsey added to its new plastics division in 1971 by acquiring Polyco Inc., a company that made polyethylene containers for industrial and household chemicals and other nonfood products.
Despite these acquisitions, however, Dorsey was still very much a glass company that took a less-than-ambitious approach to future growth. According to a 1983 Fortune magazine article, "At the helm was Chairman J. Frank Harrison, who just happened also to be the largest shareholder of Coca-Cola Bottling Co. Consolidated of Charlotte, North Carolina. Harrison, says a former colleague, 'ran the company like the absentee owner of a Coke franchise.' The Board of directors was heavy with retired executives as mature and vitreous as the glass industry they grew up with." The company's plants used obsolete, inefficient furnaces, which played a significant role in Dorsey's declining revenues. By 1975--when sales had fallen to $155 million, 60 percent of which came from the glass division--the board finally took action and recruited an executive from outside the company. It chose Jack Pollock, the president of Dart Industries' subsidiary Thatcher Glass, which had been founded by his father. Pollock assumed the role of executive vice-president under Harrison in preparation for an eventual promotion to the top job, but he wasted no time in making his presence felt. He modernized the plants, set a mandatory retirement age for both employees and board members, and landed new customers in Schlitz and Seagram, taking advantage of contacts made during his time at Thatcher. More important to the growth of Dorsey, however, would be his willingness to listen to Charles Sewell, who urged him to embrace the new PET technology.
1973 Patent of the PET Soda Bottle
The PET soda bottle was invented by Nathaniel C. Wyeth, the older brother of painter Andrew Wyeth. After studying engineering at the University of Pennsylvania, he went to work for the Du Pont Corporation. It was in 1967 that he wondered aloud why no one had thought to use plastic for soda bottles, and was quickly told by a colleague that the carbonation would cause the bottles to expand and ultimately explode. To test this explanation, Wyeth poured ginger ale into an empty plastic detergent bottle and left it in his refrigerator overnight. As his colleague predicted, the bottle had ballooned in size. Over the next five years Wyeth experimented with thousands of polymers in a determined effort to produce clear, light, and stable plastic soda bottles. Finally in 1973 he perfected a process and filed for a patent on PET soda bottles. By 1977 the Federal Drug Administration had approved the two-liter PET Bottle and a machine was developed to mass-produce it. The plastic bottle was clearly superior to its glass counterpart: 11 times lighter, unbreakable, and able to hold a carbonated beverage for three months without a loss of flavor or gas. Moreover, plastic bottles were much cheaper to ship and eliminated a major safety problem for soft drink companies and bottlers, which suffered some 20,000 injuries each year from breaking and exploding glass bottles.
Because of Sewell's lobbying, Dorsey became one of the few glass companies to recognize the inevitable move toward plastic soda bottles and took steps to join the revolution rather than be one of its victims. Sewell recognized that Dorsey had to move quickly if it was to become established in the marketplace before corporate giants like Owen's Illinois, Continental Group, and Amoco weighed in. At Pollock's behest the Dorsey board approved Sewell's request to purchase two-liter, PET bottle-making machines. While the larger competitors took time to build large, dedicated two-liter plants, Sewell installed a new machine in each of the division's 12 plants spread across the Sunbelt. In this way, the company was able to quickly enter the marketplace, spread the overhead costs, and was in a position to better serve local markets. Dorsey could offer a better price and service, and as a result, by 1980, it was the category leader with 28 percent of the business.
Dorsey's glass business was now an afterthought compared with the success of the Sewell division. Intent on selling off the glass division, Pollock made efforts to revitalize the operation, but even then it took more than a year to sell Chattanooga Glass to a management-led investment group for $40 million a piece, just two-thirds of book value. Unfortunately for Dorsey, the plastic division suffered a severe setback in the meantime. Sewell tried to move too quickly into the one-liter and half-liter soda bottle categories, but the one-liter size proved unpopular with consumers, leading to a rash of canceled orders. In addition, the half-liter bottle proved more difficult to perfect than expected.
Pollock grew disenchanted with Charles Sewell, whose strong suit was not administration. In November 1982, according to Fortune, "Pollock showed up unannounced at Sewell Plastics headquarters, demoted Charles, and placed corporate planner Bud Ahern at Sewell's helm. Charles, who is described by a friend as 'ungodly proud,' walked out of the company that afternoon." Under new leadership, the Sewell subsidiary introduced controls and more layers of management, and also opened its own research and development laboratory to develop packaging for food, beer, wine, and hard liquor. But plastic liquor and wine bottles failed to catch on with consumers, and overcapacity in the plastic beverage-bottle industry led to steep price cuts, dimming the company's prospects. Dorsey also had to deal with a hostile takeover attempt by its largest shareholder, the Far Hills, New Jersey-based investment firm of Shamrock Associates. Owning an 8 percent stake in Dorsey, Shamrock made a buyout offer that was rejected, leading Shamrock to increase its stake to more than 20 percent. Dorsey's management dug in to resist and went to court to head off Shamrock's "creeping tender." By October 1984 Shamrock had accumulated 24.7 percent of Dorsey voting stock and made a tender offer for another 29 percent, which if successful would have given it a controlling interest. To the surprise of many outside observers, a month later the two parties reached a settlement, with Dorsey buying out Shamrock. A few months later, the Dorsey board of directors adopted provisions to thwart any future takeover attempts.
The market for plastic bottles stabilized, as no new capacity came on line and some plants closed. In July 1984 Dorsey signed a major agreement with Ball Corporation to jointly develop plastic containers for such items as catsup, mayonnaise, salad dressings, and peanut butter. Although these were positive developments, Sewell still suffered from out-of-control operating costs, which could prove fatal in a commodity business like plastic. To address this problem, Pollock brought in Charles F. Casey, a friend and former colleague at Dorsey who had just retired a rich man after selling a glass company he headed. Casey and a Sewell vice-president named Robert Nickels worked together to upgrade the cost accounting system and introduce computerized production and design systems. Once the new capabilities were in place, they brought customers to the plant to work with company engineers and designers to develop more serviceable products.
Adopting the Constar Name in 1987
Casey replaced Pollock as Dorsey's president in 1987. Pollock and Casey now decided to sell off the trailer division (the restaurant chain would be divested later), and in April 1987 shareholders voted to change the company's name to Constar International Inc., reflecting the change in the company's focus. A year later, in April 1988, Casey succeeded Pollock as Constar's chairman and CEO. Pollock retired but stayed on as a director. In 1992 the Sewell plastics, Inc. subsidiary became Constar Plastics Inc. Under Casey, Constar became more interested in producing rigid plastic containers for food packaging, both in the United States and overseas. To ward off criticism about the environmental impact of plastics, Constar formed a partnership with New Jersey-based Wellman Corporation, a major waste plastics recycling company. Constar contracted to buy Wellman's used polyethylene bottles and began to increase the amount of recycled plastic it used. In addition, Constar and Wellman formed Wellstar Europe, to buy European rigid plastic container companies. A plastic manufacturer teamed up with a recycler was a strong combination in environmentally-minded Europe.
In October 1992 Constar was acquired by Philadelphia-based Crown Cork & Seal Company in a $515 million tender offer. The previous year, Constar posted sales of $548 million, operating 24 plants in the United States and Canada. Its new parent company was a $3.8 billion manufacturer of metal containers, crowns, closures, and packaging machinery. Casey retired from an active role in the running of Constar, although he became a member on Crown Cork's board. At the time of the transaction, Casey maintained that the sale to Crown Cork would strengthen Constar's ability to service the many packaging needs of its customers.
At the time of the Constar acquisition, Crown Cork was enjoying its 100th anniversary. The company was founded in 1892 by William Painter who revolutionized the beverage business by inventing the "crown cork" to seal bottles. His original company was called CrownHCork & Seal Company and was located in Baltimore. Several years later Painter brought out a foot-powered machine that could fill and cap 24 bottles a minute, a development that led to expansion around the world. By the time he died in 1906 the business was known as Crown Cork & Seal Company. In 1936 the company entered the can business, acquiring Acme Can Company of Philadelphia. Twenty years later, as a result of poor diversification efforts, the company was on the verge of bankruptcy when John F. Connelly, a former Crown Cork supplier, took over as president and turned around the company. A year later corporate headquarters was moved to Philadelphia. During the 1960s Crown Cork wisely moved into the soft drink can business, and in the 1970s Connelly was also prescient in avoiding conglomerating like his competition, instead focusing on international growth. The acquisition of Constar helped to round out Crown Cork's packaging business.
Constar soon discovered that its interests and those of its parent company did not always coincide. Crown Cork quickly cannibalized the Constar operation by transferring some of its machinery to European can-making plants to make plastic bottles as well, a move that was intended to better serve customers that used both cans and plastic bottles. Constar efforts at expansion were stunted because the subsidiary found itself competing for cash with the steel food can and aluminum beverage can units. Because Crown Cork had taken on an excessive amount of debt, money became even tighter in the second half of the 1990s. Moreover, the parent company was burdened by costs associated with asbestos litigation. Constar was picking up a good deal of momentum in the bottled water business, but Crown Cork forced the company to concentrate more of its efforts on the soft drink market, primarily because the aluminum can unit was losing market share in the area.
To many industry observers, Constar appeared to have the most growth potential of Crown Cork's businesses. In 2001 Constar generated $745.8 million, or about 10 percent of Crown Cork's $7.2 billion in sales. In 2002 Crown Cork decided to spin off the subsidiary in an initial public offering (IPO) of stock in an effort to pay down some of the parent company's $4.8 billion in debt. According to one analyst, Eric Bosshard with Midwest Research, "This was probably not plan A. ... It's unfortunate they are going to have to cut some muscle in order to stabilize the portfolio." Also unfortunate was the timing, given that the stock market was in a prolonged slump and not overly receptive to IPOs. Casey came out of retirement to help, assuming the chairmanship of Constar to get the company on its feet once it was independent. After some delays and amendments--in response to concerns that the offering was priced too high for a company involved in a very competitive business faced with rapid technological change--Crown Cork finally completed the spin-off in November 2002. Shares were priced at $12 each, far below the original range of $14 to $16. In the end, Crown Cork sold about 90 percent of Constar, raising some $550 million.
On a temporary basis, Constar set up shop in Crown Cork's Philadelphia headquarters and began to operate as an independent company once again. It was now free to pursue a number of opportunities, from increased emphasis on bottled water to what was considered the new frontier in the industry, and in some cases represented old goals, replacing the glass bottles used for teas, juices, beer, and flavored alcoholic drinks. The challenge was to design bottles able to withstand temperatures as high as 185 degrees without a loss of shape, while also finding a way to prevent the infiltration of oxygen through the plastic and spoiling the drink. The future also looked promising because it was estimated that the plastic food and beverage container market was expected to grow by 11 percent over the next few years. To achieve growth in the marketplace, Constar needed adequate funding, but it was weighed down by debt incurred in the spin-off. The company carried a debt-to-capital ratio in excess of 60 percent. By September 2003--when the price of its stock traded below $6, less than half of its IPO price--Constar was forced to take decisive measures to improve its situation. It closed two plants and hired investment banks Citigroup and Deutsche Bank to present ideas on how to better handle its debt load. Constar was not the only plastic container company feeling the pinch, however. The entire industry faced an overcapacity problem, which would be relieved to some extent by the Constar plant closings. In April 2004, Casey, having fulfilled his commitment to help launch an independent Constar, turned over the chairmanship to John F. Neafsey, president of JN Associates, an investment consulting firm. Along with CEO Michael J. Hoffman, he faced the difficult task of helping Constar chart a course to stability and growth.
Principal Subsidiaries: Constar, Inc.; Constar Plastics, LLC; Constar Foreign Holdings, Inc.
Principal Competitors: Ball Corporation; Bemis Company, Inc.; Plastipak Holdings, Inc.