Riverwood carves deeper packaging niche with graphic packaging merger

Pulp & Paper, Sep 2003 by Shaw, Monica

SPECIAL FEATURE

CORPORATE STRATEGY

Graphic Packaging International Inc. CEO Stephen Humphrey talks about the company's recent merger, describing strategy, synergies, and expansion prospects

This month, the merger of Riverwood International Corp. (Riverwood) and Graphic Packaging Corp. (Graphic) became final. Widely lauded by the investment community, the combination of the two $ I-billion companies, now known as Graphic Packaging International Inc., will create a global paperboard packaging company with leading market positions in the beverage, food, and consumer products industries.

To find out more about plans for Graphic Packaging International, along with any merger impacts on the mills it owns, Pulp & Paper spoke with Stephen M. Humphrey, former president and CEO for Riverwood, who serves in that capacity for the new company.

Humphrey joined Riverwood in 1997, bringing nearly 30 years of business experience at National Gypsum, Rockwell International, and General Electric. This diverse background gives him a unique perspective about the challenges faced by the paper and packaging industries and how Graphic Packaging can address those.

"Paper and packaging are confronting structural challenges common in almost all major producing industries where demand isn't as robust as it once was and customers are consolidating faster than suppliers, accumulating more bargaining power, and putting a tremendous strain on pricing, describes Humphrey. "This leaves little flexibility in how to improve financial performance, so you are left with driving down costs, better utilizing assets so they don't need replacing as often, and developing the most attractive niches for what's available in the total market."

Despite facing many of the same challenges as other industries, paper and packaging hasn't always responded effectively, says Humphrey. Nowhere is this more evident than in the reaction to the industry from institutional investors.

"Looking at industry behavior over the last several years, we've seen a great deal of consolidation, as well as mill and carton plant closures," explains Humphrey "Yet, we still are more or less out of favor with the institutional investor, and that tells me we're not doing enough fast enough to improve financial performance.Whatever begets it is probably different for every company, but that's ultimately the yardstick by which we are measured.

Improving financial performance for investors is exactly what the newly formed Graphic Packaging International intends to do. Achieving internal synergies will allow the company to reduce debt and increase cash flow, and the company will also carve itself a "super-niche" by offering a wide variety of both food and beverage packaging. And, Riverwood's penetration in international markets will expand company sales for Graphic's products, led by that company's consumer-oriented marketing approach.

FOOD: A BUSINESS BASE BEYOND BEVERAGE. Riverwood, and now Graphic Packaging International, is the world's largest supplier of coated unbleached kraft (CUK) paperboard, producing more than 1 million tpy at its West Monroe, La., and Macon, Ga., mills, about 65% of which is for carrierboard grades and 35% is for cartonboard. Offering a line of machinery-based packaging systems, Riverwood has been particularly successful with major multinational brewers and soft drink bottlers, supplying both the machinery and carrierboard for packaging.

In 2000, Riverwood formed a Consumer Products Packaging unit to drive more consumer-oriented packaging development and to expand its beverage packaging into other, faster-growing market sectors. Innovations have included the Z-flute, a high-performance micro-flute hailed as a lighter, more cost-effective substitute to traditional fluted containerboard with a print surface receptive to high-impact graphics. In 2001, the company also rolled out its "Fridge Vendor," a more refrigerator-friendly package for soft drinks that has been well received by consumers.

"We've tried to be both alert to what our customers want to accomplish in presenting their product to the end customer and to getting it through the distribution system in good condition," describes Humphrey. "We've tried to engineer solutions that are more than just putting ink on substrate."

One customer that Riverwood worked with successfully was Graphic Packaging Corp. of Golden, Colo. Of similar size (4,000 employees) and sales ($1 billion) as Riverwood, Graphic was known as a leading manufacturer of folding cartons for major consumer products companies. About one out of every four frozen and dried food cartons in North America is produced by the company, which acquired the Ft.James packaging business in 1999 and Universal Packaging in 1998 to solidify its market hold.

Although Graphic owned a 900 to 925-tpd coated recycled paperboard mill in Kalamazoo, Mich., it purchased most of its board, in a variety of grades, on the open market. According to Humphrey, Riverwood's business with Graphic grew dramatically in the last five years, with the company consuming about 10% of Riverwood's folding carton grade CUK production at the time of the merger. Riverwood had traditionally converted very little of its folding carton CUK grade, with most sold as roll stock into non-beverage markets.