Crown Cork faces threat of Chapter 11


PHILADELPHIA -- When Crown Cork & Seal Co.'s chief executive officer, William Avery, retired this year at age 60 after a decade in charge, some thought it an omen.

"People like that don't take early retirement unless they see something going wrong," said Gary Schneider, an analyst at Bear, Stearns & Co.

Plenty has gone wrong at Crown Cork, one of the biggest makers of metal cans, since Avery made 20 acquisitions in the 1990s that culminated in the $5.2 billion purchase of French rival Carnaud Metalbox in 1996.

Sales have declined by an average of 4.9 percent in the past three years. Last year ended with a loss of $174 million.

The company, which invented the aerosol can and employs almost 35,000 people, has about $5.8 billion in debt and a market value of $202.3 million. As of Sept. 30, it had $346 million in cash.

The company faces a decision on whether to file for Chapter 11 bankruptcy protection next year when it must make $750 million in debt payments, including $400 million due Feb. 4, analysts said.

That outcome could spell the potential loss of another manufacturer in Philadelphia, a city once one of the world's largest industrial centers.

(Crown Cork wasn't always a Philadelphia company, having been founded in Baltimore in 1892. It moved to Philadelphia in 1957.)

"The future of Crown Cork is in the banks' hands," said Joel Tiss, analyst for Lehman Brothers Inc. "If the banks don't refinance their debt, they're finished." Tiss said he doesn't own Crown Cork stock.

Moody's Investors Service lowered its rating Wednesday on the company's senior unsecured debt to "Ca," a junk rating and Moody's second-lowest rating available.

Standard & Poor's Corp. cut its ratings last week, dropping the senior debt two notches to "CCC." Crown Cork moved Tuesday to pull its shares from the Paris stock exchange.

Crown Cork, now led by CEO John W. Conway, is the biggest U.S. maker of food cans and the No. 2 U.S. maker of beverage cans, according to Schneider, the analyst. Its customers include soft-drink makers PepsiCo Inc. and Coca-Cola Co.; Anheuser-Busch Cos. Inc., the brewer of Budweiser beer; and Nestle SA, maker of Hills Bros. coffee.

Crown Cork became the biggest packaging company after the Carnaud Metalbox purchase and turned into a European company as much as it was a U.S. company.

The acquisition gave Crown Cork $8.33 billion in sales in 1996, more than four times the $1.91 billion of 1989, and the company started paying its first dividend, 25 cents a share, in 40 years.

Crown Cork stock jumped 30 percent the year after the acquisition was completed, rising to $59 in early 1997.

Avery characterized the acquisition as a "wonderful marriage" that would bring more power to negotiate higher selling prices and cut costs for raw materials.

Cracks soon became evident. Shares dropped 11 percent July 10, 1997, after profit missed estimates. Lehman's Tiss, in a report at the time, wrote that the $100 million in cost savings promised from the Carnaud merger wasn't occurring as quickly as investors had hoped.

In 1998, the stock price fell 39 percent and profit plunged to $105 million, from $294 million the year before. Shares closed Wednesday at $1.55, having lost 70 percent of their value in the past year.

Crown Cork has blamed the European businesses for making the company vulnerable to currency effects. A strong dollar deflates the value of sales denominated in foreign currencies. The company also blamed competition for stifling attempts to raise prices.

Some analysts point to the company's customer relations, saying Crown Cork didn't adjust well to Europe, where firing workers is more difficult and the company's operations in various countries there tended to compete with each other for business.

Its asbestos history has hurt the company also. Crown Cork bought "insulation operations" in 1963 and sold them just three months later, it said in a regulatory filing.

Last year, Crown Cork paid $100 million in asbestos claims, according to the Pennsylvania Trial Lawyers Association, and has paid an additional $88 million in the first nine months of 2001.

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