CONTINENTAL GROUP COMPANY History
Norwalk
Connecticut
06856
United States
Telephone: (314) 577-2000
Incorporated: January 17, 1913
Sales: $4.8 billion
Company History:
The Continental Group has long been a financially stable container company. Engaged in the mature and traditionally slow growth industry of canmaking, its revenues have increased every year without interruption since 1923. The company has overcome the problems endemic to canmaking (small profit margins, shrinking domestic market, large capital outlays for industrial machinery, etc.) through astute and careful management. However, the tranquil atmosphere at Continental was disrupted in 1984 when the company began accepting offers for a possible takeover. It was ultimately purchased by the Omaha, Nebraska construction firm of Peter Kiewit Sons and since then it has been completely restructured.
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 1930's 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 1930's was particularly important for Continental. It expanded outside the United States and began licencing 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 in 1956, with most of the growth coming in the ten year period between 1945 and 1955 when Europe was experiencing its post-war 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 Campbell's Soup which, despite only making cans for its own products, became the third largest canmaker in the world.
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 anti-trust suit. The litigation lasted for a number of 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. But 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 started. 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 1960's. 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 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. And 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 old canmaking companies, American Can and Continental, were forced to make huge capital outlays for modernization programs in the early 1970's.
The first thing Continental did was develop the Cono-plan program where, 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 which were 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. So large, in fact, that the Common Market principals sued Europemballage for anti-trust 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 Continental Can, reflecting its more diverse corporate personality, changed its name to the Continental Group. And 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.
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 a British financier, James Goldsmith made an offer to buy the Continental Group. Soon Continental had attracted a number of 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, no one else suffered from the changes brought on by the dismantling and restructuring of the company. The real winners in the deal were the Continental stock-holders. The sale to Kiewit raised share-prices and the selling of Continental properties brought impressive dividends.
The Continental Group of today barely resembles the diversified company of the late 1970's. For the first time since the mid-1950's Continental is once again a can and box manufacturer, and though the container industry is considered "mature," Continental is well situated for continued profitability. Many of the can plants have been modernized and more thoroughly automated to reduce labor costs, and the company's overseas ventures are developing impressively. The new Continental Group will be very active in the container industry during the years ahead.
Principal Subsidiaries: Continental Bondware, Inc.; Continental Container System; Continental Can International Corp.; Continental P.E.T.; Continental Plastic Containers; Continental Plastics Industries of Europe, Inc.; Continental White Cap, Inc.
Source: International Directory of Company Histories, Vol. 1. St. James Press, 1988.