Paper360 - January/February 2012 - (Page 14)
PACKAGING MILL WISE
Who’s in CONTROL in the PACKAGING Industry?
There is room to improve industry structure and profitability, but companies need to protect themselves from unwittingly becoming a piece of someone else’s growth strategy
ackaging paper markets continue to offer positive demand fundamentals and hence an attractive avenue for growth. In this article, we use a classic management tool—the strategic control map—to help visualize growth opportunities as well as threats for strategy execution. The control map highlights key issues and opportunities in the North American packaging industry structure, including: • Recent containerboard transactions limit opportunities for future plays • Continued opportunity for industry consolidation in cartonboard • The existence of several highly profitable, small companies • High-performing small companies provide an attractive entry point for new entrants • International Paper gaining a significant power position • Few options remain for radical cost consolidation efforts • Every move reduces the future options for inorganic growth
ACTIVE IN PACKAGING The North American packaging board sector has had a continuous flow of merger and acquisition activity in past years, including: • International Paper acquired Temple-Inland for $32/share in 2011. Perhaps a competitive response to RockTenn’s recent growth initiatives, the acquisition will reposition IP as the clear leader in North American containerboard
markets (as seen in Figure 1). The transaction is subject to DOJ approval and is estimated to close in Q1 2012. • International Paper’s acquisition of Weyerhaeuser’s containerboard assets for $6 billion in 2008. • RockTenn kicked off 2011 with the $3.5 billion acquisition of Smurfit Stone. The acquisition made RockTenn the second largest packaging paper company in North America. • RockTenn acquired Southern Container for $851 million in 2009 and Gulf States’ carton board business for $522 million in 2005. • Graphic Packaging and Altivity Packaging’s $1.75 billion merger in 2007. • Altivity was formed in 2006, when Texas Pacific Group bought Smurfit-Stone’s consumer packaging business for $1.04 billion and two additional cartonboard mills from Field Container. • Graphic Packaging divested two of the earlier acquired carton board mills to Sun Capital Partners in 2008. With few exceptions, the top producers in North America are highly focused on either container or cartonboard (Figure 1). PACKAGING INDUSTRY POWER STRUCTURE The strategic control map shows the relationship between size (measured by book value) and performance for shareholders (measured by market-to-book ratio). It was developed by D’Silva, Fallon and Mehta in 1996, and is
Packaging paper markets continue to offer positive demand fundamentals and hence an attractive avenue for growth.
Paper360º JANUARY/FEBRUARY 2012
Table of Contents for the Digital Edition of Paper360 - January/February 2012
Over the Wire . . . News Summary
Thinking Small Is Leading to Big Changes
Who’s in Control in the Packaging Industry?
The Problem of Paper Curl
Preventing Bacterial-Generated Gas Explosions
TAPPI JOURNAL summaries
Environmental Challenges for the Coming Decade
Paper360 - January/February 2012