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Packaging Specialty Chemicals

Specialty Papers

Consumer & Office Products

Media Industries Analysis: Kacey Brenckle & Erin McFadden

MeadWestvaco

Introduction pg 1

The United States represents the largest market for consumer packaging in the world. Total packaging volumes increased to 472 billion units in 2002, and according to a Euromonitor forecast, are expected to increase over 9% to 515 billion units by 2007. The packaging industry, being largely influenced by changes in consumer lifestyles, has been shifting towards convenient, functional, and portable packaging since 1998. Much of the traditional food packaging, including metal cans and glass bottles, has been experiencing a decrease in sales over recent years with the increased consumption of flexible packaging. Flexible packaging, including stand-up pouches, is currently the most widely used form of packaging in the market as a whole, most likely due to its versatility and ease of transport. Products and packaging that are able to offer consumers greater levels of convenience are expected to experience the most significant volume growth between 2002 and 2007. Health is also set to play an important part in the key developments in the market for packaged food in particular. Beverages also play an important role in the growth of packaging, with trends towards new bottle shapes, high-quality labels, and introductions of new brands. The cosmetics and personal care segment is creating new challenges for creative packaging, with increased need for high-quality labels with eye-catching graphics, and a move towards globalization that requires packages to be suitable for all markets world wide.

Diamond Packaging of Rochester, NY, is one company that displays a strong ability to adapt to the changing face of the packaging industry. As a member of the Global Packaging Alliance they are able to easily reach a global market, and continue to invest in the latest technologies enabling Diamond to maintain a strong presence in the consumer products market. Amcor Limited, based in Melbourne, Australia, is one of the worldʼs top three packaging companies, targeting specific growth markets in the packaging industry including flexible packaging, PET bottles, and closures for the food and beverage industries. Based on their product focus and global reach, Amcor will have the ability to obtain leading market positions within the high-growth segments of the packaging industry.

MeadWestvaco

Executive Summary pg 2

MeadWestvaco Corporation was established in 2002 with the January 30th merger between Mead Corporation and Westvaco Corporation. Mead was founded in 1846 by Colonel David E. Mead, originally named Ellis, Chaflin and Company. Mead was one of the leading producers of coated paper, coated paperboard, and consumer and office products in North America. Westvaco was founded by William Luke in 1888, as the Piedmont Pulp and Paper Company. Westvaco was the leading producer of paperboard and value-added packaging for media, pharmaceutical, and consumer markets, as well as a producer of specialty chemicals and coated papers. The two already well established companies form a powerful combination, focusing on creating new products, expanding their markets, and strengthening customer relationships. The principle markets MeadWestvaco serves are automotive, beverage, consumer products, media and entertainment, and publishing industries, priding themselves on being the worldʼs largest supplier of media packaging, number one U.S. supplier of folding cartons to the pharmaceutical market, and second largest supplier of packaging for cosmetics. The company currently has offices operating in 29 countries, as well as global operations serving nearly 100 countries.

In 2005, MeadWestvaco sold their entire papers segment, a consistent money loser for them, to the investment firm Cerberus Capital Management. The sale included mills in 5 states, as well as 900,000 acres of forestland in 6 states. Cerberus set up the divested business as the independent company, NewPage Corporation. As a result of the sale, MeadWestvacoʼs packaging segment now accounts for three-quarters of their sales, with the majority of the remainder coming from its international operations. MeadWestvaco retained about 1.2 million acres of forestland after the sale. MeadWestvacoʼs vision is “To be a global leader in our markets – admired for our innovative spirit, integrity and stewardship.”

MeadWestvaco

Markets Served: Packaging pg 3

MeadWestvacoʼs largest market segment is packaging, responsible for 2/3 of their operations. The segment offers a wide range of consumer products packaging solutions for their customers including media, beverage and dairy, cosmetics, tobacco, pharmaceuticals, and healthcare. A variety of materials are produced by MeadWestvaco for these products including bleached paperboard, Kraft paperboard, linerboard, Coated Natural Kraft paperboard, and saturating Kraft. The companies maintain two paperboard brands, Custom Kote and Carrier Kote. Custom Kote is a high-performing paperboard with a smooth, glossy surface and high strength characteristics that ensure the integrity of the product. This is typically used to package high-value consumer products for the food, beverage, automotive, and healthcare industries. Carrier Kote is also a high-performing paperboard, but is specially designed to retain its strength in high moisture-level environments, making it especially useful for the beverage industry.

MeadWestvaco

Markets Served: Consumer & Office Products pg 4

The consumer and offices products segment of MeadWestvaco manufactures, markets, and sells school products, time management products, and envelopes in North America and Brazil through retail and commercial channels. Some of their more popular consumer and office product brands include Mead, AT-A-GLANCE, AMCAL, Cambridge, Day Runner, Five Star, Trapper Keeper, and COLUMBIAN.

MeadWestvaco

Markets Served: Specialty Chemicals & Papers pg 5

MeadWestvacoʼs specialty chemical segment manufactures, markets, and distributes specialty chemicals derived from sawdust and by-products of the papermaking process. Some of these products include printing ink resins, activated carbon, emulsifiers, pine chemicals, water based polymers and asphalt innovations.

The specialty papers segment of MeadWestvaco is recognized as a leader of technology for the decorative laminate industry. This division primarily utilizes Saturating Kraft for the manufacturing of decorative laminates for kitchen countertops, furniture, flooring, wall panels, and padded stock for electronic packaging. Other applications for specialty papers include medical pouches, road signs, furniture, and masking tape. Innovative features of Saturating Kraft include the ability to line concrete forms and absorb moisture and gases without compromising important elements of color and design.

MeadWestvaco

Packaging Solutions pg 6

MeadWestvaco offers a wide variety of packaging options, with the ability to use multiple substrates and materials from paperboard to plastic, as well as injection-molded plastic. They offer services from package development to systems in order to deliver a complete range of packaging solutions. A variety of printing technologies, including rotogravure, offset lithography, and flexography, along with multiple finishing options allow for their services to be utilized in many different applications and industries. Through its many subsidiaries within consumer packaging, MeadWestvaco is able to provide services from package design, to product launch, to brand protection for the global marketplace. This flexibility has led MeadWestvaco to become the worldʼs largest supplier of media packaging, the number one supplier of folding cartons to the U.S. pharmaceutical market, and the second largest packaging supplier in the U.S. for cosmetics.

MeadWestvaco

Key Clients pg 7

Coca-Cola Enterprises, Inc. has a multi-year agreement to purchase the FridgeMaster refrigerator pack from MeadWestvaco. The slimmed-down soft drink container offers eye-catching graphics, superior package strength, and ease of use due to the incorporation of a dispenser into the design. According to Coca-Cola, the FridgeMaster has been hugely successful, and has been noted as the companyʼs “most signifi cant innovation in packaging since the plastic contour bottle was introduced in 1993.”

MeadWestvacoʼs patented Dosepak design has been adopted by Procter & Gamble Pharmaceuticals as the latest generation of packaging for their Actonel 35mg Once-a-Week dose. Dosepakʼs innovative design incorporates a sealed package that provides maximum child-resistance, but is still user-friendly for seniors.

MeadWestvaco will be printing Really Big Coloring Books product line as well as handling order fulfi llment through their Consumer and Offi ce Products division. MeadWestvaco will distribute the product line from their Sidney, New York operations center, allowing Really Big Coloring Books to offer an expanded line of educational and offi ce products.

Philips Lighting, the worldʼs largest lighting manufacturer, has selected MeadWestvacoʼs company Paxonix to streamline their packaging process across all lighting product lines in North America. The PaxPro workfl ow software, created by Paxonix, uses collaboration, digital asset management, and version control to fully automate Philipsʼs packaging processes for over 2,500 different lighting products.

Crown Holdings, Inc., formerly Crown Cork & Seal Company, is a leading international producer of consumer packaging, deriving a majority of sales from Europe. Their product focus includes aerosol cans, paint cans, food and beverage cans, plastic bottles and other containers, as well as a variety of metal caps, crowns, and closures. Crown is currently expanding to new markets including Latin America, Asia, and southern and central Europe. The metals packaging unit accounts for almost 70% of Crownʼs sales, with only 30% of that coming from the US. Some of their major clients include Coca-Cola, Pepsi-Cola, Nestlé, and Mars.

Crown can be viewed as competition for MeadWestvaco due to its similar size and sales generation. Crownʼs 2005 sales total $6,908 million with 27,600 employees.

International Paper is the worldʼs largest forest products company, manufacturing paper, packaging, plywood, and pulp; distributing paper and packaging products; and selling specialty chemicals that result from pulp processing. The company owns 6.8 million acres of forest in the US, 1.2 million acres in Brazil, and other smaller areas in Russia. International Paper distributes products in the US through its subsidiary Xpedx, and to Europe through multiple subsidiaries. The US makes up three-quarters of the companyʼs sales.

Recently, International Paper announced plans to sell off its coated papers, Kraft papers, beverage packaging, and wood products operations in order to focus more on their core paper and packaging businesses. With similar production capabilities and product offerings, International Paper can be viewed as a direct competitor to MeadWestvaco in terms of clients and market share.

Weyerhaeuser is one of the largest US forest products companies, operating through fi ve business segments: Wood Products include lumber, plywood, and other building materials; Containerboard, Paperboard, and Recycling includes corrugated boxes, linerboard, industrial and agricultural packaging, and recycling; Pulp and Paper produces pulp, coated and uncoated paper; Timberlands focus is on the management of Weyerhaeuserʼs 6.4 million acres of US forestland and an additional 30 million acres in Canada; and Real Estate and Related assets concentrates on developing housing and master-planned communities. The fi rst three segments account for 80% of the companies sales. Weyerhaeuser is planning expansion to locations such as Australia, New Zealand, Brazil, and Uruguay.

MeadWestvaco competes with Weyerhaeuserʼs Containerboard, Paperboard, and Recycling, Pulp and Paper, and Timberlands segments due to the ability to create similar products. The international expansion of Weyerhaeuser will also generate increased competition in international markets.

MeadWestvaco

Competitors pg 8

MeadWestvaco

Financials pg 9

MeadWestvaco is focusing closely on their business strategy: to create global leadership in high value packaging and deliver higher and more stable returns to their shareholders. With their fiscal year ending in December, MeadWestvacoʼs 2005 sales totaled almost $6.2 billion, and net income reached $28 million, showing a significant increase from 2004ʼs year-end loss of $349 million. The packaging segmentʼs profitability declined slightly from the 2004 year end due to higher raw material and energy costs, and lower shipment and production levels caused by the lingering effects of the hurricanes and the impact of market-related downtime. The decline in media markets was offset by growth in the cosmetics, healthcare, and tobacco markets.

In April 2005 MeadWestvaco sold its printing and writing papers segment to Cerberus Management LLC for $2.2 billion in cash, as well as $100 million in notes. In the fourth quarter of 2004, MeadWestvaco reported charges totaling $2.69 per share related to the sale. During the second quarter of 2005, the company used approximately $1.1 billion of the proceeds to reduce their debt, and $620 million to repurchase about 10% of their outstanding shares. During the third quarter of 2005 the company bought back an additional 2.7 million shares for nearly $80 million. The repurchasing of stocks is one way they can return value to their shareholders.

Last year, MeadWestvaco implemented initiatives aimed at reducing general and administrative costs as well as streamlining warehousing logistics, with the expectation of cutting costs by $200 million annually by the close of 2007.

Packaging segment sales for the newly established company are as follows: 2005: $4,476 million 2004: $4,402 million 2003: $3,394 million 2002: $2,501 million

The packaging segment of MeadWestvaco has slightly decreased in the companyʼs total sales over the last four years, but has maintained steadily increasing sales since their first year as a company.

MeadWestvaco

Success Story pg 10

In April 2000, Westvaco Corporation acquired IMPAC Group, Inc., a global supplier of high-value packaging and printing solutions for the media, cosmetics, and health and beauty aid markets. The company soon became known as AGI Klearfold, and allowed Westvaco to expand its creative packaging options to global high-value markets. After the merger of Mead and Westvaco in 2002, AGI Klearfold has remained an important asset to the company by providing packaging solutions that incorporate unique services, materials, complex structures, and high-quality printed graphics. These qualities have allowed MeadWestvaco to create important relationships with companies such as Avon, EMI, Universal, BMG, Procter & Gamble, Colgate-Palmolive and Revlon. AGI Klearfold has maintained a reputation of being “the industry innovator and leader in the design and marketing of creative and visual packaging”. The company has fit in well with MeadWestvacoʼs vision of maintaining innovation, integrity, and stewardship, as they are known for listening to their customers needs and creating an original package for each product. AGI Klearfold is responsible for the development of new packages that create lasting impressions on consumers such as the Evolution Box, a less expensive alternative to the traditional rigid set box; InSight visual packaging, a new design for beverage packaging; and Durafold Security Packaging, to balance ease-of-use with theft resistance.

AGI Klearfold also utilizes special effects printing, including dimensional coatings, to create the most visually appealing products for consumers.

AGI Klearfold has won several awards, including IoPP Ameristar Awards in 2003 and 2004, Gold and Excellence Awards at the Paperboard Packaging Councilʼs Paperboard Packaging Competition for 2003 and 2004, and Grand Prize Winner for 2003 at the HBA International Design Awards.

MeadWestvaco

Conclusion pg 11

MeadWestvaco has established a strong presence within the media, pharmaceutical, and consumer product markets; as they are currently one of the top two suppliers for each market. New acquisitions will keep the company at the top of their markets and continually striving to reach higher goals, while divestitures allow them to sell off divisions of the company that are consistently losing money. As a leading company in media, pharmaceutical, and cosmetics packaging, the constantly evolving product offerings, and unique and innovative package designs, successfully attract and retain key customers. MeadWestvaco has proved their ability to compete within the U.S. and global packaging industry, and will continue to update their portfolio through acquisitions of more diverse companies. In the future, MeadWestvaco will most likely focus more heavily on their packaging segment, as it is most profitable for them, and continue expansion world wide to serve as many markets as possible.

MeadWestvaco

Bibliography pg 12

Boxboard Containers International (2005). Retrieved: January 20, 2006 from http://boxboard.com/ar/boxboard_agiklearfold_grabs_three/index.htm.

Cosmetic/Personal Care Packaging (2005). CPC Retrieved: January 13, 2006 from http://www.cpcpkg.com/dir/co/209/20937.html.

DataMonitor, MeadWestvaco Corporation Company Profile (2005 July). Datamonitor.Retrieved: January 14, 2006, from http://www.datamonitor.com/.

Hooverʼs Online Report Builder MeadWestvaco

Corporation (2005). Hoovers, Inc. Retrieved: ,January 13 2006, from http://access.hoovers.com/.

MeadWestvaco (2006). Retrieved January 10, 2006 from http://www.meadwestvaco.com/.

MeadWestvaco, GP Report Losses. (2005, July). Official Board Markets, 81(31), 8. Retrieved January 14, 2006, from ABI/INFORM Trade & Industry database. (Document ID: 906975871).

MeadWestvaco Data (2006). Standard and Poors. Retrieved January 18, 2006 from http://www2.standardandpoors.com/.

Packaging Industry Structure Slides(2006). Professor Twyla Cummings. Retrieved from: mycourses.rit.edu.