Owens-Illinois, Inc.
Address:
One Sea Gate
Toledo, Ohio 43666
U.S.A.
Telephone: (419) 247-5000
Fax: (419) 247-1132
http://www.owens-illinois.com
Statistics:
Public Company
Incorporated: 1907 as The Owens Bottle Machine Corporation
Employees: 32,400
Sales: $4.66 billion (1997)
Stock Exchanges: New York
Ticker Symbol: OI
SICs: 3089 Plastic Products, Not Elsewhere Classified; 3221 Glass Containers
Company Perspectives:
Owens-Illinois is one of the world's leading manufacturers of packaging products. It is the largest manufacturer of glass containers in North America, South America, and India, and the second largest in Europe. Approximately one of every two glass containers made worldwide is made by Owens-Illinois, its affiliates, or its licensees. The company's plastics group manufactures a wide variety of plastic packaging items including containers, closures, trigger sprayers, finger pumps, prescription containers, labels, and multipack carriers for beverage containers.
Owens-Illinois is the leader in technology, the high-productivity/low cost producer, and the leading supplier in almost all of the markets it serves.
Company History:
Owens-Illinois, Inc. is one of the largest manufacturers of glass containers and plastic packaging in the world. About half of the glass containers made worldwide are made by Owens-Illinois. It holds the top position in glass containers in the United States, North America, South America, Australia, New Zealand, and India, and the number two position in Europe (behind Compagnie de Saint-Gobain). In 1997, 71 of overall sales stemmed from glass. The remaining revenue was generated from the company's plastics group, which is a leading worldwide maker of plastics packaging, including containers, closures, prescription containers, labels, and multipack carriers for beverage bottles. With 144 manufacturing plants in 24 countries, an increasingly global Owens-Illinois generates about 37 percent of sales outside the United States.
Early History
The Toledo-based company was incorporated in Ohio in 1907 as The Owens Bottle Machine Corporation, the successor to a New Jersey firm of the same name founded in 1903. It took the name Owens-Illinois Glass Company following the 1929 merger of Owens Bottle and the Illinois Glass Company of Alton, Illinois, a small manufacturer of glass products for the drug and medical fields. Like most can and bottle making companies, Owens-Illinois weathered the years of the Great Depression without a production slowdown. Throughout the 20th century the container industry as a whole proved itself to be almost unaffected by dramatic swings in the economy.
In 1935 Owens-Illinois acquired the Libbey-Glass Company and entered the consumer tableware field. The Libbey division was responsible for making tumblers, glass pitchers, dishes, and bowls. Soon afterward Owens began conducting experiments with glass fibers, learning that one of its chief competitors, Corning Glass, was doing similar research. The two firms agreed to cooperate and formed Owens-Corning Fiberglass in 1938. Development of marketable fiberglass products quickly followed. Corning and Owens, with their virtual monopoly on fiberglass technology, profited greatly. Following a 1949 antitrust ruling that barred Corning and Owens from controlling Owens-Corning, the joint venture was taken public in 1952, with shares distributed, one-third each, to Owens, Corning, and the public. Subsequently, both Owens-Illinois and Corning Glass sold their shares in Owens-Corning.
During the period immediately following World War II, Owens-Illinois remained primarily a glassmaker, its few deviations from the bottle business being limited to those areas on the immediate periphery of glass containers. This was all soon to change, however. A number of antitrust rulings in the late 1940s restricted companies such as Owens-Illinois from increasing market share through wholesale acquisitions of subsidiaries in their respective industries. Growth, it seemed, would have to come from fields outside glass.
Meanwhile, from 1948 through 1958, Owens-Illinois made asbestos pipe and boiler insulation under the brand Kaylo. Though it sold this fairly small business to Owens-Corning in 1958, the company's production of an asbestos-laden product would result in extended litigation in the 1980s and 1990s.
Diversification in the 1950s and 1960s
The first significant diversification move came in 1956 when Owens purchased the National Container Corporation, America's third largest box maker at the time. The move into forest products, though gradual, was as predictable as it was necessary. It made good economic sense to make a forest products company part of the Owens-Illinois holdings. Not only was the parent firm supplied cardboard boxes at reduced rates, but the paper and pulp sector turned profits of its own.
In the 1950s Owens-Illinois took another step outside the glass container field, into a promising new area&mdash+astics. The company had for some time made plastic caps and closures, but up until the mid-1950s the technology for making plastic containers was not available. This changed very quickly.
Most popular at that time was the plastic squeeze-bottle which could be used as a container for prepared mustard and other sauces. Owens-Illinois, however, directed its energy toward semirigid plastic containers, and this strategy was successful. In 1958 Owens-Illinois persuaded a number of large bleach and laundry detergent companies to switch to the new bottles. The plastic bottles were immediately popular with consumers and continued to gain favor during succeeding decades. Each year plastic containers claimed a more substantial share of counter space in American supermarkets.
Despite the important advances in paper and plastics, the company was still very much committed to glass manufacturing. The 1960s were years of tremendous growth in both can and bottle manufacturing. Although the two industries were rivals for the growing consumer beverage market, there was enough soft beverage and beer business for all the container companies. The intense competition was for the lion's share, and the initial demand for the new pop-top can seemed to relegate glass containers to a distant second place.
Then the ever bothersome returnable bottle, with its thick glass and mandatory deposit, gave way to the lighter "one-way" bottle. The new construction ushered in a renaissance for the glass industry, allowing it to challenge the can industry more effectively. Since the one-way bottle was not returned for refilling it could be made of thinner glass. This meant production cost and production time were reduced, thereby increasing profit margins. Although many industry analysts thought the glass beverage container was destined to failure in the early 1960s it did not surrender its market share to the pull-tab can; bottle sales tripled that decade.
Still, Owens-Illinois was aware that diversification efforts would have to be accelerated if growth was to continue. The burgeoning of the beverage market during the 1960s was not to be repeated, and expansion in glass manufacturing slowed considerably. The company involved itself in such far-removed fields as sugar cane farming in the Bahamas and phosphate rock mining in Florida. During the late 1960s Lily Tulip Cups, maker of everything from wax-lined milk cartons to disposable cups, was acquired. Moves such as these prompted Owens-Illinois to drop the word "glass" from its corporate name, becoming Owens-Illinois, Inc.
Modernizing Facilities in the 1970s
As beverage sales leveled off in the 1970s, the container industry found itself in the midst of a worldwide recession. Many large can and bottle customers, which included large breweries and soft drink companies, began manufacturing their own containers. Many can and bottle manufacturers had unwisely increased the size of their container-producing facilities and were now confronted with overcapacity, an unwieldy workforce, and tumbling prices. The problem was particularly acute in bottle manufacturing where production was more labor-intensive.
Owens-Illinois attempted to solve this problem through technology, investing in new industrial equipment that could make 20 bottles in the time it used to take to make six, and therefore cutting labor costs. Also, the company dedicated more factory space, often entire plants, to single product lines for one customer. However, these were stop-gap measures and did not solve the overall problem. Wholesale modernization was necessary.
As Owens-Illinois entered the 1980s its production costs advantage, once the envy of the industry, had been eroded. While the company developed revolutionary new container machinery, it allowed the majority of its conventional glass plants to deteriorate. Edwin D. Dodd, the company's chief executive officer, divested marginal interests, which were draining resources and performing poorly, and supervised a $911 million four-year plant modernization program.
More importantly, the company's attitude toward its own industry changed, particularly regarding bottle manufacturing. Historically a large volume dealer concerned with maintaining its huge market share, Owens-Illinois began to emphasize profit margins rather than its share of the bottle manufacturing market. Unprofitable plants, even relatively new ones, were closed or sold; production of the two-way returnable bottle was discontinued in favor of the exclusive manufacture of the "one-way" bottle; and the minimum order level was raised while the customer base was reduced to a number of large-volume, blue-chip customers. The results of this policy were impressive. Capacity was reduced by 24 percent and the workforce was cut by 30 percent. Owens-Illinois was again able to reclaim its productive edge over competitors.
Owens-Illinois's regard for the natural environment drew the attention and praise of consumer advocate Ralph Nader. In his 1971 study on water pollution, Nader cited Owens-Illinois as the industrial company with the best record on environmental issues. The compliment was well-deserved. The company's glass factories were among the safest and cleanest in the business; it led the industry in recycling; and it advocated a national system of resource recovery to deal with the mounting solid waste problem.
Owens-Illinois environmental policies came about largely through the work of a former chief executive officer, Raymond Mulford, who died in 1973. He had encouraged community participation on behalf of his staff and factory workers and devoted nearly half of his time in later years to social and environmental programs. Most company plants were located in small towns, and Mulford insisted they be an asset, not a liability, to the community. This meant confronting the issue of pollution control long before it was a national concern.
By the early 1980s the modernized Owens-Illinois company was the most formidable member of the glass container industry. It outproduced its competitors by 33 percent. Yet, to increase profit margins and efficiency, company operations were streamlined. The company invested heavily in research and developed production methods that reduced the labor content of a finished glass product from 40 percent to 20 percent. A total of 48 plants were closed and 17,000 workers laid off. The jobs of 46,000 other employees, however, were saved.
Many of Owens-Illinois's rivals did not spend the money necessary to compete. Thatcher Glass, once number two in the industry, went bankrupt in 1981, its failure the product of a poorly executed leveraged buyout and an unwillingness to rebuild old furnaces and install new technology. Other manufacturers, such as Anchor-Hocking and Glass Containers Corporation, found themselves in similar predicaments.
Robert Lanigan, the CEO of Owens-Illinois during the 1980s, emphasized the manufacture of plastic bottles and the increasingly popular plastic-shield glass bottle. He also continued the diversification program and acquired two nursing home chains and the Alliance Mortgage Company, a mortgage banking concern. Owens-Illinois's policies were aimed at reducing the company's vulnerability to a takeover. Since the container industry was a mature, slow-growth one, return on stockholder's equity was, in the mid-1980s, less than ten percent. Thus Owens-Illinois's stock price was well below book value; at the same time, it had an attractive annual cash flow of $300 million.
KKR Leveraged Buyout in 1987
In the end, Lanigan's efforts could not stave off a takeover. On December 11, 1986, Kohlberg Kravis Roberts & Company (KKR), a holding company specializing in taking firms private, offered to purchase Owens-Illinois for $55 per share. Owens-Illinois refused the offer and threatened to initiate a reorganization, including the sale of over $1 billion in assets, in order to protect the company from subsequent takeover attempts. KKR responded by raising its bid to $60 per share. When investment houses acting on behalf of Owens-Illinois failed to find buyers willing to outbid KKR, Owens-Illinois officials were forced to negotiate.
In mid-February 1987, Owens-Illinois announced that it had agreed to be acquired by a KKR subsidiary, the Oil Acquisition Corporation, for $60.50 per share, or about $3.6 billion. In order to finance the leveraged buyout a number of banks agreed to extend a short-term, or "bridge," loan of $600 million to KKR, to be paid back over 18 months through an issue of high-yield bonds.
KKR had first established a relationship with Owens-Illinois in 1981, when it purchased cupmaker Lily Tulip from Owens-Illinois. While some members of the Owens-Illinois board opposed the takeover (and opposed becoming a private company), it was generally agreed that the short-term interests of the stockholders were served.
Over the next few years KKR-led Owens-Illinois divested several noncore operations, in part to pay down the hefty $4.4 billion debt on the company books following the LBO and in part because a prime reason to diversify--fending off raiders--was now moot. In addition to jettisoning the forest products and mortgage banking unit, Owens-Illinois sold its healthcare businesses in 1991 for $369 million.
Meanwhile, the company moved to significantly bolster its share of the U.S. glass container market through a $750 million 1987 acquisition of Jacksonville, Florida-based Brockway Inc. The merger of two of the three largest U.S. glass container makers was initially blocked by the U.S. Federal Trade Commission (FTC), which contended that the combination would create a company with too much control of the market, with a 38 percent share. Owens-Illinois took its case to federal court, winning an appeal in 1988. The following year, however, an FTC administrative law judge ruled that the company should be forced to sell Brockway, leading to another Owens-Illinois appeal. Finally, in March 1992 the chairman of the FTC overturned the earlier ruling, allowing the acquisition to stand.
Somewhat ironically, in December 1991 a federal jury had found that Owens-Illinois and Brockway (along with Dart Industries Inc.) had conspired to fix prices on glass containers in the 1970s and 1980s. A settlement on the damages was soon reached out of court, with the terms not disclosed.
Public Again in 1991
In December 1991 KKR took Owens-Illinois public once again, through an initial public offering (IPO) that raised about $1.3 billion. The proceeds were used to further pay down debt, which by 1993 stood at $2.5 billion. KKR maintained a stake of about 26 percent through the late 1990s.
Over the next several years after the IPO, Owens-Illinois concentrated on building up its core glass container and plastic packaging operations. Much of the growth would come in the form of acquisitions--particularly overseas--but the company also spent more than $1.5 billion in capital expenditures from 1993 through 1997 to improve productivity and increase capacity of existing facilities. The company's involvement in the plastics industry also expanded, evolving into a plastics group producing containers, closures, prescription containers, labels, and multipack carriers for beverage bottles. The 1992 acquisition of Specialty Packaging Products, Inc. brought Owens-Illinois a leading U.S. manufacturer of trigger sprayers and finger pumps, with annual sales of $100 million.
During the mid-1990s the company continued to affirm its concentration on glass containers and plastic packaging through several strategic divestments. In 1994 and 1995 it sold off its specialty glass segment. Also in 1994 Libbey Glass was spun off, becoming the publicly traded Libbey Inc. Owens-Illinois in December 1993 sold 51 percent of specialty packaging and laboratory equipment maker Kimble Glass Inc. to Gerresheimer Glas AG. It sold the remaining 49 percent stake to Gerresheimer in March 1997.
Mid-1990s Global Expansion
A serious international presence began in 1993 with an expansion of South American operations, leading to the company's capture of the number one position in glass containers on that continent. Another top position, in India, was gained in 1994 through the acquisition of glass container maker Ballarpur Industries. Three years later Owens-Illinois spent about $586 million for AVIR S.p.A., the largest manufacturer of glass containers in Italy. By this time the company also held leading positions in this segment in the United Kingdom, Poland, Hungary, Finland, Estonia, and had gained the number two position overall in Europe.
Back home, Owens-Illinois paid about $125 million in February 1997 to acquire the glass container assets of Anchor Glass Container Corporation, in the process increasing its share of the U.S. market to more than 40 percent. Also during 1997 the company completed a major refinancing, which included the retirement of about $1.9 billion in high-cost debt. In April 1998 Owens-Illinois paid $3.6 billion in cash for the worldwide glass and plastics packaging businesses of BTR plc of the United Kingdom, in the largest acquisition in company history. Added thereby to the Owens-Illinois empire was ACI Glass Packaging, the only maker of glass containers in Australia and New Zealand, with additional operations in China and Indonesia; and U.S.-based Continental PET Technologies, a leading supplier of plastic food and drink containers in the United States, Australia, New Zealand, the United Kingdom, the Netherlands, and such emerging markets as Brazil, China, Hungary, Mexico, and Saudi Arabia. The Commission of the European Communities approved the purchase but with the stipulation that Owens-Illinois sell BTR's glass container operations in the United Kingdom, known as Rockware Glass.
Throughout the 1990s the company had to contend with ongoing asbestos litigation stemming from its Kaylo insulation business of 1948--58. By the end of 1997 Owens-Illinois had settled claims involving about 210,000 claimants, with an average payment per claim of $4,200. The company had itself sued more than two dozen insurance companies who had refused to cover these claims. By 1997 Owens-Illinois had reached settlements with a number of these insurers, resulting in about $308.4 million in coverage for the company. It expected to receive substantial additional payments as the remaining suits reached settlements. Owens-Illinois was still a named defendant in asbestos claims involving about 14,000 claimants by the end of 1997, and new claims were filed each year, although the number was steadily decreasing.
Even prior to the acquisition of BTR's packaging units, Owens-Illinois had more than doubled its sales outside the United States. In 1997 non-U.S. revenue accounted for 37 percent of overall company revenue, which had reached a record $4.66 billion. With its concentration on the core areas of glass containers and plastic packaging and with its aggressive program of international expansion, Owens-Illinois appeared to have in place a solid plan for 21st-century growth.
Principal Subsidiaries: Owens-Illinois Group, Inc.; OI Health Care Holding Corp.; OI General Finance Inc.; OI Closure FTS Inc.; OI Plastic Products FTS Inc.; Owens-Illinois Prescription Products Inc.; Owens-Brockway Plastic Products Inc.; Owens-Illinois Labels Inc.; Owens-Brockway Packaging, Inc.; OI Ione STS Inc.; Owens-Brockway Glass Container Inc. The company also lists subsidiaries in the following countries: Bolivia, Brazil, Bermuda, China, Colombia, Czech Republic, Ecuador, Estonia, Finland, Hungary, India, Italy, Mexico, the Netherlands, Peru, Poland, Spain, Thailand, the United Kingdom, and Venezuela.
Further Reading:
Henderson, Angelo B., "Owens-Illinois Agrees to Acquire Glass, Plastic Line of BTR for $3.6 Billion," Wall Street Journal, March 2, 1998, pp. A13.
Norman, James R., "Smart Timing," Forbes, November 25, 1991, pp. 170+.
Willoughby, Jack, "Owens-Illinois: Wishful Recap," Financial World, May 14, 1991, pp. 21+.
Source: International Directory of Company Histories, Vol. 26. St. James Press, 1999.
