Viatech Continental Can Company, Inc.

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Viatech Continental Can Company, Inc.

One Aerial Way
Syosset, New York 11791
U.S.A.
(516) 822-4940
Fax: (516) 931-6344

Wholly Owned Subsidiary of Suiza Foods Corporation
Incorporated: 1913
Employees: 3,442
Sales: $546.3 million (1997)
SICs: 3081 Unsupported Plastics Film & Sheet; 3089 Plastic Products, Not Elsewhere Classified; 3411 Metal Cans; 3565 Packaging Machinery; 8711 Engineering Services

Viatech Continental Can Company, Inc.—since June 1998 a wholly owned subsidiary of Dallas-based dairy and packaging firm Suiza Foods Corporation—is a packaging company operating through a number of subsidiaries. The company holds an 84 percent stake in Plastic Containers, Inc., which in turn owns Continental Plastic Containers, Inc., a leading manufacturer and marketer of extrusion blow-molded plastic containers for household chemicals, food and beverages, automotive products and motor oil, industrial and agricultural chemicals, and cosmetics and toiletries. Dixie Union GmbH & Company KG is a wholly owned subsidiary of Continental Can based in Germany and makes multilayer shrink bags, composite plastic films, and packaging machines and slicers, primarily for the food and pharmaceutical industries. Continental Can also owns 64 percent of Paris-based Ferembal S.A., the second-largest manufacturer of food cans in France as well as a producer of cans for pet foods and industrial products. In turn, Ferembal holds 96 percent of Obalex A.S., a manufacturer of cans in the Czech Republic. Continental Can also wholly owns Lockwood, Kessler & Bartlett, Inc., an engineering consulting firm with no connection to the packaging field.

The Continental Can Company of the late 20th century represents a second chapter in the use of the company name, although there is more than just the name connecting the historical periods. The original Continental Can traces its roots to 1913 and enjoyed a long period as a financially stable container company. Engaged in the mature and traditionally slow growth industry of canmaking, its revenues increased every year without interruption from 1923 into the early 1980s. The company overcame the problems endemic to canmaking (small profit margins, shrinking domestic market, large capital outlays for industrial machinery, etc.) through astute and careful management. In 1984, however, the tranquil atmosphere at Continental (by this time known as Continental Group) was disrupted when the company began accepting offers for a possible takeover. It was ultimately purchased by the Omaha, Nebraska, construction firm of Peter Kiewit Sons Inc., which over the succeeding seven years chopped up the company assets and sold them off piece by piece. In 1992 Donald J. Bainton, a former president of the company, bought the rights to the Continental Can name and logo and resurrected the company in name—and, in terms of operations, resurrected the company itself, at least in part, since he had in 1991 acquired one of Continental’s units, Continental Plastic Containers.

Early History

Incorporated during 1913 in New York, the company was acquired by the Los Angeles Can Company in 1926 and then merged with the Continental Can Company of California. As cans gradually became the preferred method of packaging and preserving consumer products, Continental’s business grew impressively. By the 1930s it was also producing corrugated paper boxes and crown bottle caps and had emerged as the second-largest container company in the United States, behind American Can.

The decade of the 1930s was particularly important for Continental. It expanded outside the United States and began licensing equipment and expertise to affiliate companies in Europe. These holdings were then subsequently increased after World War II, providing Continental a strong foothold in the burgeoning European can market and a large competitive edge over American Can. In fact, Continental went from being just half the size of American Can Company in 1942 to being slightly larger than American Can in 1956, with most of the growth coming in the ten year period between 1945 and 1955 when Europe was experiencing its postwar boom.

Not all the news was good, however. Both Continental and American suffered a setback in 1950. Up until that year these two companies had offered volume discounts to their larger customers, thereby significantly underselling their smaller competitors. In 1950 a Federal Court struck down this practice and also demanded that the two companies offer canmaking machinery for sale. Prior to this, Continental and American would only lease machinery to other canmakers. This also served to weaken the grip of the “big two” on the industry.

Because the business was opened more widely to competition, prices and profit margins began to decrease, and many of the major can customers began to see the benefits of manufacturing their own cans. The most vivid example of this was the Campbell Soup Company, which, despite only making cans for its own products, became the third-largest canmaker in the world.

New Cans and Attempted Diversification in the 1950s

This situation left Continental Can two choices: either invest heavily in research and development to make the technology of competitors and defecting customers obsolete, or diversify into other markets to mitigate the drop in can profits. Company management decided to do both. The traditional three-piece, soldered-seam tin can was gradually being replaced by cans of lighter metals such as aluminum and other steel alloys. While the new cans required a more complex manufacturing process and more expensive materials, their lighter weight made them popular with consumers and less expensive to transport. This represented the future of canmaking, and Continental was quick to prepare for it.

In 1956 the company made its first major ventures outside canmaking. In that year Continental merged with the Hazel-Atlas Glass Company and a few months later purchased the Robert Gair Paper Company. However, no sooner had Continental finalized the agreements than it was charged with an antitrust suit. The litigation lasted for several years, ultimately reaching the Supreme Court where the mergers were declared lawful. The Justice Department could not prove that the Continental-Hazel-Gair agreements adversely affected competition. However, between the court costs and three successive years of subpar performance, both Gair and Hazel-Atlas were proving to be costly financial ventures. Less than a year after the mergers had been pronounced legal, Continental divested itself of both companies.

In 1963 a simple but ingenious feature was introduced to cans—the pop-top tab opener. Though it is unclear who thought of the idea first (both Amcan and Alcoa have patents on somewhat similar designs), it did not take long for most major can producers to introduce the new pop-tab cans. The industry was virtually revolutionized overnight. The era of the “six-pack” had begun. The new cans, which were light, easy to open, easy to store, and unbreakable, helped ward off a challenge from the non-returnable bottle which was so popular at the time. Due in large part to the new can, beer and soda pop consumption in the United States increased dramatically in the 1960s. Continental, which had always considered itself an industrial container corporation, began to manufacture consumer beverage cans and flourished.

The various brewers and soft drink bottlers were eventually consolidated under a few large companies, thus reviving the trend towards the self-manufacture of cans. A corporation such as beer brewer Schlitz, by building “on-site” can plants instead of contracting a company to make and transport their cans, could save a large amount of money. Container technology was also changing. Aluminum, despite its higher price, was emerging as the canmaking “staple” by replacing the heavier and less popular tin can. Moreover, for the first time the storage and container potential of plastics began to be recognized. To keep up with the shifting topography of the industry, the traditional canmaking companies American Can and Continental were forced to make huge capital outlays for modernization programs in the early 1970s.

1970s Modernization and Diversification

The first thing Continental did was develop the Cono-plan program, under which, in an effort to keep its customers and slow the trend toward self-manufacturing, Continental would construct a canmaking operation within the client’s factory, thereby eliminating all transportation costs. In addition, Continental Chief Executive Officer Robert Hatfield closed 15 plants considered too distant from customers. He then spent over $100 million to modify existing plants so that they could produce the newer and more profitable two-piece can which was quickly replacing the older three-piece can.

However, these measures were not enough. In order to achieve more substantial growth, Continental accelerated its diversification program and more firmly established itself in foreign markets. The company developed and marketed its paper products with considerable success and also moved into the non-container fields of oil and gas. In 1969 it established the Europemballage container holding company, which in a matter of years became the largest canmaker in Europe’s Common Market. It became so large, in fact, that the Common Market principals sued Europemballage for antitrust violations and succeeded in restricting the holding company from acquiring affiliates in new markets. Despite this setback, Continental was able to take advantage of Europe’s move toward supermarkets and canned perishables and reap large financial rewards.

In 1976 the company, reflecting its more diverse corporate personality, adopted the new name of Continental Group, with Continental Can continuing to be the name of the packaging unit within Continental Group. As if to prove its reorientation, the company spent $370 million to purchase the Richmond Corporation, a $1.1 billion life, title, and casualty insurer. The idea behind the acquisition was to integrate the capital intensive packaging sectors with a sector that had low capital requirements but plenty of liquid assets. These assets were then redeployed to such areas as oil and gas exploration.

In 1981 Robert Hatfield retired, and S. Bruce Smart took over as chairman. Smart continued most of Hatfield’s programs and procedures and, like his predecessor, regarded energy, not consumer retail goods, as the prime growth industry of the future. He planned to spend $800 million over a five-year period on energy exploration, research, and transportation. (In 1983 Donald J. Bainton, president of the Continental Can unit, took early retirement in frustration over what he felt was a misguided program of diversification.)

Sold in 1984, Dismantled by 1991

Continental continued its slow but steady growth and gradually increased its lead over American Can. Despite its continuing success, however, the company’s stock was markedly undervalued. In 1984 British financier James Goldsmith made an offer to buy the Continental Group. Soon Continental had attracted several potential suitors, both foreign and domestic. Smart and the management at Continental ultimately sold the company to Peter Kiewit Sons Inc., a construction firm based in Omaha, Nebraska. Kiewit paid $3.5 billion in cash and assumed debt to finalize the agreement.

Smart apparently thought that a Nebraska construction company one-third the size of Continental would be easier to deal with than financial professionals like Goldsmith. At a banquet dinner given to celebrate the finalization of the sale, Smart said, “I don’t think we’ll have anyone from Nebraska coming all the way to Connecticut to tell us how to make cans.”

The full irony of the statement was not felt until a year later. If the people at Kiewit did not change the way Continental made cans, they changed everything else. Under the direction of Donald Strum, Kiewit dismantled the sprawling Continental Group in an effort to make the operation even more profitable. His two goals were to sell Continental’s properties until only the can operations and the timberlands were left, and to eliminate the corporate management “dead wood” which had become conservative and complacent. In the matter of a year Strum sold $1.6 billion worth of insurance, gas pipelines, and oil and gas reserves. Staff at the Stamford, Connecticut, corporate headquarters was reduced from 500 to 40. Among those relieved of their duties was S. Bruce Smart himself, who later accepted a job with the Reagan Administration as Secretary of International Commerce.

Apart from those in higher management, however, not many jobs were lost during the changes brought on by the dismantling and restructuring of the company, and the real winners in the deal were Continental stockholders. The sale to Kiewit raised share prices, and the selling of Continental properties brought impressive dividends.

However, within a few short years, Continental Group was no more, as Kiewit sold off all the remaining packaging units. Philadelphia-based Crown Cork & Seal Co. Inc. bought Continental Can Canada Inc. in late 1989 and the U.S. aluminum can operations of Continental in the following year. German industrial group Viag AG bought Continental Can Europe in 1991.

During this time, in early 1991, Continental Can Company was ordered to pay out $415 million to some 3,700 former employees and members of the United Steel Workers of America, when the courts found that the company had attempted to defraud the employees of pensions during the late 1970s.

Continental Can Resurrected in the 1990s

Also in 1991 Kiewit sold the only remaining Continental unit—Plastic Containers, Inc. (PCI), which owned Continental Plastic Containers, Inc. Purchasing a 50 percent interest in PCI was Syosset, New York-based Viatech Inc., which Donald Bainton had run since leaving Continental Group in 1983. At the time he joined Viatech, the firm owned only Lockwood, Kessler & Bartlett, Inc., an engineering consulting firm with $6 million in annual revenues. This business had no connection to the packaging industry, but Bainton planned to make Viatech his base for bringing Continental Can back to life.

Bainton made Viatech’s first move into packaging with the mid-1980s purchase of Dixie Union GmbH & Company KG, a moneylosing German manufacturer of plastic bags used in food packaging, such as in the packaging of hot dogs and lunchmeat. Next was the acquisition of another troubled European firm, Onena Bolsas de Papel, S.A., a printer and laminator of plastic films based in Spain. Bainton quickly turned both companies around. In 1989 he purchased 51 percent of Ferembal S.A., the second-largest food can maker in France. After acquiring the 50 percent interest in PCI in 1991, Bainton purchased the rights to the Continental Can Company name and logo from Kiewit, renamed Viatech Continental Can Company, Inc. in October 1992, and took the company public. With annual revenues of $500 million, the new Continental Can was a mere shadow of the one-time giant $4 billion Continental Can of old, but Bainton was determined to grow the company, mainly through acquisition.

The newly opened markets of Eastern Europe provided one area of growth for Continental Can in the mid-1990s. The company’s first move into this region came in the Czech Republic, where a majority stake was purchased in Obalex A.S., a maker of metal cans, most of which were used for food. In 1997 Continental Can, through Ferembal, took a 51 percent stake in Amco S.A. of Romania, a leading manufacturer of metal cans, caps, and crowns. Meanwhile, the company sold Onena Bolsas de Papel in 1996 and increased its stake in PCI from 50 percent to 84 percent, while the stake in Obalex was jumped to 96 percent in 1997. In April 1998 the company boosted its interest in Ferembal to 97 percent.

In June 1998 Suiza Foods Corporation completed its acquisition of Continental Can for about $345 million. Suiza, which was also positioned as one of the leading dairy companies in the United States, had 16 plastic packaging plants in the United States which when added to Continental Can’s 15 such plants created a leader in plastic packaging, particularly in the high-density polyethylene (HOPE) segment of the industry. Continental Can’s plastic packaging operations were thus clearly what made the acquisition attractive for Suiza. The divestment of Continental’s European units became a possible outcome of the deal, although it was also possible that Suiza would use Continental’s overseas presence as a base for international expansion in the 21st century.

Principal Subsidiaries

Ferembal S.A. (France; 97%); Lockwood, Kessler & Bartlett, Inc.; Dixie Union GmbH & Company KG (Germany); Plastic Containers, Inc. (84%); Continental Plastic Containers, Inc.; Continental Caribbean Containers, Inc.; Obalex A.S. (Czech Republic; 96%); Amco S.A. (Romania; 51%).