To get market share, Constar pushes plastic over glass

Posted: December 17, 2002

With its market for plastic food-and-beverage containers expected to expand by 11 percent a year through 2005, Constar International Inc. has no shortage of opportunities.

Now that it has been spun off from the financially troubled Crown Cork & Seal Co. Inc., it should be easier for Constar to reap its share of that growth.

"We need funding so we can grow with the marketplace," said Michael Hoffman, president and chief executive officer of Constar, which went public Nov. 15.

The company's shares have not moved far from their $12 offering price, closing down 63 cents yesterday at $11.75 on Nasdaq.

As a subsidiary of Philadelphia's Crown Cork since 1992, Constar had to compete for cash with Crown Cork's steel food can and aluminum beverage can businesses. That was particularly tough during the last five years when Crown Cork was struggling with a huge debt and was crippled by asbestos-related costs.

With a debt-to-capital ratio higher than 60 percent, Constar is highly leveraged itself, but at least it has shed the asbestos yoke. Plus, it has been cut free from Crown Cork's aluminum can business - formerly in-house competition for the soft-drink container market.

"I think they have a lot more freedom to go in different directions," said John Maddox, who operates Container Consulting Inc. in Jacksonville, Fla.

In recent years, Crown Cork pushed Constar hard into the soft-drink market because its aluminum can operations were losing ground in that market anyway, Hoffman said. At the same time, Constar gained a lot of bottled-water business.

Bottled water is expected to continue its rapid growth, ballooning to 20.4 billion bottles in 2005 from 9.3 billion bottles last year, according to estimates by Container Consulting that were included in Constar's prospectus.

But for Constar and makers of other PET (polyethylene terephthalate) containers, the most important frontier now is in replacing glass containers as the packaging of choice for beverages, such as teas, juices, beer, and flavored alcoholic drinks.

Winning that battle is a matter of designing bottles that can withstand 185-degree heat without losing their shape and devising a way to keep oxygen from seeping through the plastic and spoiling the drink.

That must be done in a way that gives companies the distinctive, branded appearance that is easy to acheive in glass.

Last year, Constar came out with a 42-ounce Arizona iced tea bottle that accomplished all three of those things, Hoffman said. Maddox said it was "one of the finest engineered bottles out there."

Other companies, including Graham Packaging Co. in York, have competing technologies, but Constar's are very good, industry experts said.

"One key advantage Constar has right now is that it's a newly independent company, it's got good technology and good leadership by a group of guys that are really enthusiastic," said David Luttenberger, publishing director of Packaging Strategies, an industry newsletter in West Chester.

For now, Constar rents space in Crown Cork's building in Northeast Philadelphia. Hoffman said Constar would have its own headquarters in the Philadelphia area by the end of next year.

Ticker: CNST; Exchange: Nasdaq

Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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