Chesapeake Corporation Business Information, Profile, and History

Company Perspectives:

Creating opportunity. Embracing innovation. Excelling in customer service. These were the driving values of the entrepreneurs who founded Chesapeake Corporation in October 1918, and have been part of our foundation for 80 years. These values continue to drive us in defining our future.

History of Chesapeake Corporation

Once a broader-based paper and packaging company, Chesapeake Corporation repositioned itself in the late 1990s to be a global specialty packaging firm. The company's major businesses include Field Group plc, the leading folding carton maker in the United Kingdom; Chesapeake Display & Packaging, which specializes in point-of-purchase merchandising services from bases in the United States and Europe; and Chesapeake Packaging Co., a leader in the manufacture of corrugated containers and packaging. A smaller unit, Chesapeake Land Development, is involved in the development of Chesapeake-owned land, including master planned communities and bulk land sales.

Early History

Elis Olsson, a Swedish-born papermaker, was already a recognized pioneer in the industry when he moved his family from Quebec to Virginia in 1918. Olsson had become director of a corporation he organized with the help of a Norwegian shipping financier, Christoffer Hannevig. Olsson had helped to develop the first kraft process mill in Canada. Kraft paper is the heavy brown paper produced from unbleached pulp that is used for such items as grocery bags. Another of Olsson's technical innovations was the first commercial paper mill boiler to use wastewood and bark for fuel. He also engineered the first modern chemical recovery boiler. When Olsson first moved to West Point, the paper industry was in its infancy.

Chesapeake Corporation began via an agreement to lease the assets of Chesapeake Pulp & Paper Company, a subsidiary of Fox Paper Company, based in Ohio. Included with the leased assets was a sulphate mill in West Point that dated to 1914. The company had not proven profitable and the assets were leased with an option to buy, as the original owners wished to withdraw from the operation. Upon his arrival, Olsson quickly invested in plant improvements; pulp and board mills had deteriorated throughout the United States during World War I. Olsson also put his technical skills to use, revamping the tricky sulphate process that produced paper from pine.

Chesapeake was profitable by 1921, but president Hannevig's shipping empire went under and he resigned from the company. Olsson thus sought both financial backing and a new company president. It was hard to find supportive investors in the shaky postwar climate, but H. Watkins Ellerson, president of one of Chesapeake's pulp customer companies, agreed to back the enterprise and serve as president of a reorganized Chesapeake. Olsson became vice-president, but for all practical purposes he ran the company. One of the first decisions of the restructured corporation was to buy the West Point mill instead of leasing. In 1922 bonds were issued to cover the purchase price, as well as the cost of needed plant improvements.

By 1926 Chesapeake was producing kraft paper, market pulp, crude turpentine, and box board on an average of 85 tons a day. It paid its first dividends the same year, a tradition uninterrupted except by the Great Depression. In 1929 Olsson was named president; he remained a leader in the company for the next 30 years, 14 of them as chairman of the board.

The 1930s were a time of growth for Chesapeake, despite the Depression. In 1932 Chesapeake became the second company in Virginia to hire a professional forester and begin a program of reforestation. Reforestation had been a company undertaking since 1922. As orders dropped off during the Depression, salaries and wages were cut. Nonetheless, Chesapeake's earnings reached the million-dollar mark for the first time in 1934. Chesapeake worked with Camp Manufacturing Company to erect and operate a pulp and paper mill in Franklin, Virginia, in 1936. The new mill was named Chesapeake-Camp Corporation at the time; its name later changed to Union Camp Corporation. Chesapeake eventually sold its interest in the mill.

In 1941 the company name was changed to The Chesapeake Corporation of Virginia. Its stock was offered on the New York Stock Exchange for the first time in 1944. During the labor shortage of World War II, Chesapeake maintained its production levels with the help of women--who worked at office jobs, as well as at cutting pulp wood in the forests--and German and Italian prisoners. In 1945 Olsson became company chairman. His son, Sture Olsson, assumed the position of president of the company in 1951.

Entering Packaging in the Postwar Years

Having entered the corrugated container industry in 1946, Chesapeake acquired two box and container companies in 1961: Baltimore Paper Box Company and Miller Container Corporation. Miller went on to become the Roanoke division of Chesapeake Packaging Company. Between 1962 and 1964, Chesapeake invested $21 million into an expansion program that included its second paper machine and a new power plant. In 1967 Scranton Corrugated Box Company, Inc. was acquired. It became the Scranton division of Chesapeake Packaging Company.

In 1968 Sture Olsson resigned as president to serve as chairman of the board; Lawrence Camp was named president and CEO. That same year, Chesapeake acquired the Binghamton Container Company, now a division of the Chesapeake Packaging Company. The company's next major acquisition came in 1977 when it purchased a packaging company that eventually became the Louisville and St. Anthony divisions of Chesapeake Packaging Company.

Decentralization and Restructuring in the 1980s

The 1980s were a time of great growth and change for Chesapeake. During this decade it vaulted to a position as a Fortune 500 company and instituted a policy of decentralization. Changes commenced with the election of J. Carter Fox as president and CEO of Chesapeake. Only 41 years old at the time, he was the youngest CEO in the industry. Fox had moved up the ranks at Chesapeake. He first worked as a summer maintenance helper while still in school, then joined the company full-time in 1963 as a project accountant. As president and CEO, Fox reorganized the company's management structure. By putting managers in charge of operating units, the company was better able to focus on niche markets. The company was also restructured to reflect its four core business segments--treated wood, point-of-sale displays, table napkins, and brown and white linerboard boxes. Fox also oversaw trimming of the company, unloading unprofitable units such as plywood and sawmill plants.

In 1981 Chesapeake opened its first wood treating plant in Pocomoke City, and a new wastewood-fueled boiler went online at West Point. The new boiler helped to cut oil consumption by about five percent of total energy consumed. Chesapeake's energy program was often ahead of the industry in its utilization of residual and self-generated sources of energy. About this time, Chesapeake wrapped up a $51 million capital improvement program at West Point that was designed&mdash¯ong other advances&mdashø allow the company to bear a greater wood inventory at the mill, thus minimizing its reliance on outside woodyards. In order to meet production demands, the company's sawmill and plywood plants were supplied primarily by contract loggers who harvested wood off private and company-controlled timberlands. These timberlands were in the Blue Ridge Mountains of Virginia and North Carolina, as well as in parts of Maryland and Delaware. In 1982 about 75 percent of the raw material used to produce needed pulpwood and chips came from southern pine. Because the company had experienced four serious wood shortages between 1968 and 1982, management of the woodlands was critical. Decentralization helped to minimize the shortages, as an area manager was designated to oversee and coordinate land management, acquisition, and wood procurement.

Decentralization began in earnest in 1983, when the company was divided into three investment centers. Chesapeake was one of the few pulp and paper companies in the United States to make expansion plans in 1983. The industry was still recovering from the recession and prices for key pulp and paper products were just beginning to bounce back.

In order to utilize the valuable company-owned land in Delaware, Maryland, and Virginia, Delmarva Properties, Inc. was established. Delmarva concentrated on developing various residential, recreational, commercial, and industrial lots on some of the properties too valuable to manage as timberlands. Chesapeake also modernized its West Point mill via a $73 million expansion project; this included a major revamp of the mill's roll handling system to reduce paperwork and order error and make inventory more accurate. The improved system was in place by 1984. Chesapeake acquired its tenth container plant, Color-Box, Inc. of Indiana, that same year. It also purchased a wood-treating plant near Fredericksburg, Virginia. The company's name was shortened during this period to Chesapeake Corporation from The Chesapeake Corporation of Virginia.

In an interview in Pulp & Paper magazine in 1984, Chesapeake president and CEO Fox said that the company's small size worked to its advantage. The company could manufacture different special market products to suit individual customer needs. "Only in this way can we hope to successfully compete with some of our competitors who in many cases are much larger firms with far greater financial reserves than Chesapeake," said Fox. Another of the company's advantages, he said, was that "Chesapeake has the closest linerboard mill to the northeastern U.S. market, and we can offer overnight service to the New York City area."

It was during this time that Chesapeake began plumping up its capacity to produce linerboard through expansions and upgrades. It also expanded its production of market pulp. Both these product lines were hard hit in 1982 and 1983. To counterbalance the dip in sales, Chesapeake negotiated a multiyear labor agreement that lowered wages and reduced staff by five percent. The amount spent on capital improvements was justified by the fact that the company had only one mill and had to keep it running efficiently. In 1985 the company acquired Wisconsin Tissue Mills Inc., of Wisconsin and Plainwell Paper Co., Inc., of Michigan. Prices for pulp and linerboard, however, continued to be depressed.

In 1986 Chesapeake completed the conversion of its paper machine at West Point and began production of a new product--corrugating medium. This enabled the company to offer its customers a uniform, high-quality linerboard. The company's new high-speed Tri-Kraft linerboard machine was the first of its kind in North America, using multi-ply technology to produce linerboard and thus producing a sheet with superior strength and uniformity. Start-up costs affected the company's earnings for that year, but ultimately the gamble paid off. When Chesapeake began offering white linerboard instead of the common brown, sales dramatically increased. Companies preferred the white because logos and advertising could be clearly read from them.

In 1987 the company moved its corporate headquarters from West Point to the James Center in downtown Richmond. According to Fox, this was done so that paper-mill staff there could operate as independently as the other decentralized operations. A $160 million expansion was approved to add a fourth paper machine to the Wisconsin Tissue facilities. This project, completed in 1990, boosted that mill's production capacity by more than 70 percent. Chesapeake also acquired Distinctive Printing and Packaging Co., thus expanding its point-of-sale display business.

In 1988 Chesapeake's earnings rose 71 percent, in large part because of the boom in sales of white corrugated boxes. Chesapeake Packaging Company was reorganized to better handle the national sales of point-of-sale display. The company also continued its acquisition of other properties with the purchase in 1988 of a wood-treating plant in Holly Hill, South Carolina, followed shortly by the acquisition of Displayco Midwest Inc.

In 1991 Chesapeake combined with Toronto-based StakeTech to form a $2.5 million venture called Recoupe Recycling Technologies to market a "steam explosion" system of paper recycling. Using basic pressure cooker technology, the system saved water and energy and produced more uniform pulp than other processes. Sales for that year declined a bit; the recession, low demand, and continued pricing pressures were cited. Chesapeake underwent another management restructuring that year, with Paul Dresser becoming chief operating officer.

Pulp market prices dipped in 1992, costing the company some $2 million in the fourth quarter alone. The year was a disappointing one, although the company held a 20 percent share of the mottled white linerboard market that year, a business that was still growing at a rate of seven percent a year. Chesapeake was also doing well in the areas of commercial tissue and point-of-sale corrugated displays.

Increasing Emphasis on Specialty Packaging in the 1990s

Through a detailed reassessment of corporate strategy undertaken in 1992, Chesapeake determined that specialty packaging would be the fastest area of company growth. The company thus began to expand its packaging operations, which accounted for 29 percent of sales in 1993 but would account for almost half by 1998. In addition to the faster growth projected for the specialty packaging sector, that segment of the paper industry was less prone to economic swings and less capital intensive than other industry sectors, particularly the kraft products area. Chesapeake's first major move in building up its packaging operations came in January 1994, when it acquired Lawless Holding Corp., owner of Lawless Container Corp. and six plants in western New York and Ohio. Through this acquisition packaging became, in 1994, the company's largest business segment in terms of sales for the first time.

In April 1994 Sture Olsson retired after 26 years as chairman; Fox added the chairmanship to his duties as president and CEO. Paul A. Dresser, Jr., was named president in April 1995 but resigned a year later, with Fox reassuming that title.

Despite the decreasing importance of kraft products in its overall business mix, Chesapeake felt the full effects of the commodity pricing cycle in 1995 and 1996, with the "up" year of 1995 leading to record net sales of $1.23 billion and net income of $93.4 million, and the "down" year that followed leading to declines in these figures to $1.16 billion and $30.1 million, respectively. During 1996, Chesapeake expanded internationally for the first time, acquiring display and packaging operations in France and Canada and a tissue converting facility in Mexico.

The most dramatic event in the transformation of Chesapeake came in May 1997 when the company sold its West Point kraft products mill, four corrugated container plants, and other related assets to St. Laurent Paperboard Inc. for about $500 million. The exit from kraft products left Chesapeake with two primary sectors--specialty packaging and tissue--along with a much smaller forest products/land development sector. In August 1997 Thomas H. Johnson was named president and CEO of Chesapeake, with Fox remaining chairman. Johnson had previously served as president and CEO of Atlanta-based Riverwood International Corp., a privately held packaging company. In April 1998 Fox retired, with longtime board member Harry H. Warner taking over as chairman.

Also in 1998 Chesapeake added to its packaging operations through the acquisition of Denver-based Capitol Packaging Corporation, a specialty packaging company; and of Utica, New York-based Rock City Box Co., Inc., a manufacturer of corrugated containers, trays, and pallets, and wood and foam packaging products. Acquisitions as well as divestments continued in 1999. In March of that year--following a bidding war with Shorewood Packaging Corp.--Chesapeake paid approximately $373 million to acquire U.K.-based Field Group plc, a leading European specialty packaging firm. In April 1999 Chesapeake announced that it had signed letters of intent to sell its building products business to a subsidiary of St. Laurent Paperboard Inc. and 278,000 acres of timberland to Hancock Timber Resource Group, a subsidiary of John Hancock Mutual Life Insurance Company. Two months later Chesapeake reached an agreement with Georgia-Pacific Corporation to combine the companies' commercial tissue operations in a joint venture to be managed by Georgia-Pacific and be 90 percent owned by that company and ten percent owned by Chesapeake.

Through these moves Chesapeake would become almost fully focused on one sector--specialty packaging. The divestments would also generate more than $850 million in cash to be used, according to Johnson, "to repurchase Chesapeake stock, continue the growth of our core specialty packaging businesses through strategic acquisitions and alliances, and reduce debt." The rapid transformation of Chesapeake into a global specialty packaging firm appeared to have positioned the company for a period of growth as it headed into the 21st century.

Principal Subsidiaries: Field Group plc (U.K.); Chesapeake Display & Packaging Company; Chesapeake Display & Packaging-Europe S.A. (France); Chesapeake Packaging Co.; Chesapeake Land Development.