Meadwestvaco Corporation Business Information, Profile, and History
Stamford, Connecticut 06905
MeadWestvaco's innovation, customer relationships and strength throug hout the packaging value chain drives our leadership. From excellence in engineering unique paperboards to innovative uses of multiple mat erials to world-class expertise in package design, converting and sys tems, we deliver integrated packaging solutions throughout the world- -creating value for customers, consumers and shareholders. We are a l eader in consumer and office products, specialty chemicals and specia lty papers, where innovation is essential to market leadership. Our b usinesses are dedicated to addressing customers' most pressing challe nges.
History of Mead Westvaco Corporation
MeadWestvaco Corporation, formed in early 2002 by the merger of Mead Corporation and Westvaco Corporation, operates as a leading packaging company that serves the food and beverage, media and entertainment, personal care, cosmetic, and healthcare industries. The company also has interests in consumer and office products and specialty chemicals . MeadWestvaco has facilities in more than 29 countries and owns appr oximately 1.2 million acres of forestlands. In 2005, the company sold its Paper division and half of its forestlands in a $2.3 billion deal.
The History of Mead
The Mead Corporation began as Ellis, Chafflin & Company. Founded in 1846 by Colonel Daniel Mead and his partners, the company produced book and other printing papers at a mill in Dayton, Ohio. In 1856 Me ad bought out his original partners with a friend from Philadelphia, Pennsylvania, forming Weston and Mead. This company became Mead and W eston in 1860, then Mead and Nixon in 1866. In 1873 Daniel Mead spear headed a reorganization of the firm as the Mead & Nixon Paper Com pany, and in 1881 Mead bought out Nixon, establishing the Mead Paper Company in 1882. He immediately upgraded the Dayton mill and in 1890 purchased a facility in nearby Chillicothe, Ohio. During the first de cade of its existence, Mead Paper Company averaged annual profits of $22,000, peaking at nearly $50,000 in 1891, the year of Mead' s death.
In the years after Mead's death, the management of the company passed to his sons, Charles and Harry, who became president and vice-presid ent, respectively. Despite the fact that Mead had left a thriving bus iness, Mead Paper soon fell on hard times, owing in large part to per sonal overdrafts by family members amounting to more than $200,00 0, as well as to the substantial salaries drawn by Harry and Charles Mead and Charles's travel expense and cash accounts, which in 1900 am ounted to $13,800. Combined losses for 1901 and 1902 added up to more than $36,000, and banks began calling in the company's loans . By 1904 the Teutonia National Bank instituted a suit that resulted in trusteeship of the company by bankers in Dayton, Chillicothe, and Cincinnati, Ohio.
As Mead Paper Company teetered on the brink of total collapse in 1905 , the banker-trustees turned to George Mead, Harry Mead's independent and business-minded son, requesting that he take over the helm at Me ad. George, then about to leave his post at the General Artificial Si lk Company in Philadelphia, accepted the opportunity to rejuvenate th e family company. He reorganized it as the Mead Pulp and Paper Compan y and was appointed vice-president and general manager. George Mead's business philosophy would influence the company substantially during his 43-year tenure.
Mead Pulp and Paper made its first public stock offering in 1906. A y ear later operations were consolidated at the Chillicothe mill, costi ng the company more than $32,000. The economic recession of 1907 and the tremendous cost of moving almost destroyed Mead once again, b ut the sale of the Dayton property saved the company. Finally, in 190 8, the company made profits of almost $25,000, and it continued t o operate in the black until the Great Depression.
Growth via Acquisitions: 1910s-40s
During the 1910s, Mead expanded through acquisition and began to maxi mize machine output by restricting its product lines. In 1916 Mead pu rchased a share in the Kingsport Pulp Corporation of Kingsport, Tenne ssee, and in 1917 it acquired full control of the Peerless Paper Comp any of Dayton. George Mead had been reducing the number of different types of paper made at Mead since his entry in 1905, when the company produced 15 different grades of paper. Seeing that profits would be maximized if each machine could concentrate on producing one type of paper rather than continually changing production methods for differe nt papers, Mead specialized his mills as far as possible.
Toward this end, in 1917 Mead secured a five-year contract to produce magazine paper for Crowell Publishing Company. The magazine paper ca lled for 75 percent of the Chillicothe mill's production. Consequentl y, Crowell remained Mead's principal customer throughout the decade. In 1918 the Management Engineering and Development Company was establ ished in Dayton as a separate firm to supervise engineering of new Me ad plants and to market Mead's engineering services to other paper co mpanies. In 1921 the Mead Sales Company was established as a separate corporation to sell white paper produced by Mead mills and other U.S . and Canadian mills.
In 1920 Mead bought out the other owners of Kingsport Pulp. The plant began white paper production in 1923 and became a central Mead facto ry. Mead began to diversify its product lines in the 1920s as it star ted to manufacture paperboard. By 1925 Mead research led to the disco very of the semi-chemical pulping process by which wood chips from wh ich tannin had been extracted could be converted into paperboard. Mea d expanded the paperboard business in the late 1920s with the purchas e of mills throughout Appalachia that produced corrugating medium fro m wood waste. In 1927 The Mead Paperboard Corporation was founded as a holding company for the paperboard operations, including the Sylvia Paperboard Company, The Harriman Company, The Southern Extract Compa ny, and the Chillicothe Company.
The Mead Corporation was incorporated on February 17, 1930, and Georg e Mead was appointed president. The company subsumed the operations o f the Mead Pulp and Paper Company, The Mead Paperboard Corporation, a nd the Management Engineering and Development Company, although the s eparate legal existence of these organizations continued for some yea rs. At that time, the company had 1,000 employees and plants in four states. In 1935 Mead's common and preferred stock were listed on the New York Stock Exchange.
During the 1930s Mead made substantial acquisitions that diversified its lines. Although concentration on a few types of paper was necessa ry when the company was small, Mead had grown large enough to produce a number of grades of papers profitably. Mead's own major mills had attempted to sell business, envelope, and writing papers, but they ha d no luck. Two major purchases were Dill & Collins in 1932 and Ge o. W. Wheelwright Company in 1934. Each of these companies had establ ished names and well-developed distribution systems. This allowed Mea d to market effectively large quantities of specialty papers produced at Chillicothe as well as smaller quantities produced in the acquire d mills.
In 1938 Mead entered two joint ventures in an effort to reduce its de pendence on imported pulp and to enter the kraft linerboard business. With Scott Paper Company, it formed the Brunswick Pulp & Paper C ompany at Brunswick, Georgia to supply both parent companies. In addi tion, with the holding company of the Alfred du Pont estate, Almours Security Company, it built a huge pulping plant in Port St. Joe, Flor ida. By 1937 the Brunswick mill was producing 150 tons of pulp per da y. Soon the Port St. Joe facility was yielding 300 tons of pulp and 3 00 tons of linerboard daily. It was widely regarded as the leading li nerboard mill in the country and by 1940 was making $1 million a year before taxes. Relations with the Almours Security Company deteri orated, however, and Mead sold its share of the operation. Mead inten ded to launch another linerboard mill immediately, but World War II h alted this plan.
In 1942 George Mead became chairman of the board and Sydney Fergusen, who had been with the company since the 1910s, became the corporatio n's president. In the same year, Mead purchased a small white-paper m ill from the Escanaba Paper Company in Michigan's upper peninsula. Ev entually the Escanaba mill would become one of Mead's largest operati ons. Two other acquisitions were made, in 1943, that of the Manistiqu e Pulp and Paper Company, of Manistique, Michigan and, in 1946, that of the Columbia Paper Company in Bristol, Virginia. The Manistique pl ant was sold in the early 1950s, and the Virginia company was consoli dated with the Wheelwright plant in 1946. Other plants bought to meet postwar demand were subsequently sold.
Although Mead had continued production at a breakneck pace to meet do mestic and overseas container and paper requirements, wartime price a nd profit controls, as well as raw material shortages, stunted the co mpany's growth. In 1945 Mead's assets had risen only $2.1 million from a prewar figure of $37 million.
Immediately following the war, however, Mead was back on course. Its well-defined postwar plan allotted $23 million for plant expansio n. In the brown paper division, plans were readily revived to build a kraft linerboard plant to replace the Port St. Joe operation. Mead f irmly entrenched itself in paperboard-making through its joint projec ts with Inland Container Corporation. The companies first collaborate d in 1946 to found the Macon Kraft Company to build and operate a pap erboard mill in Macon, Georgia. This was followed by successive joint mills built in Rome, Georgia, in 1951 and Phenix City, Alabama, in 1 966.
Diversification Beyond Paper Products in the 1950s
Mead saw a rapid succession of presidents after Fergusen, who in 1948 became chairman of the board and handed the presidency on to Charles R. Van de Carr, Jr. In 1952 Howard E. Whittaker became president, an d five years later he was replaced by Donald R. Morris. The year 1955 marked the beginning of a new period of growth for Mead, as the comp any diversified beyond its traditional paper products. A 1957 acquisi tion, the Atlanta Paper Company, led Mead into the packaging business and was the forerunner of Mead's packaging division, which invented the familiar paper six-pack carrier for bottled beverages and became the largest supplier of paperboard beverage packaging in the world. T he specialty paper division, which produced papers for filters and in sulation, was started with the purchase of Hurlburt Paper Company of South Lee, Massachusetts in 1957.
Mead entered the container business in 1955 and 1956 with the acquisi tion of Jackson Box Company of Cincinnati, Ohio. This firm became the nucleus of Mead's containerboard division. In 1960 Mead's rapid expa nsion in paperboard manufacture prompted the Federal Trade Commission (FTC) to file a complaint against Mead, alleging that Mead's growth since 1956 was anticompetitive. Mead and the FTC settled in 1965 when Mead signed a consent decree, agreeing to sell seven of its plants o ver five years and place a ten-year moratorium on paperboard acquisit ions.
Mead began its wholesale distribution network with the acquisition of Cleveland Paper Company in 1957. Mead's aggressive expansion of its wholesale force provoked a 1968 suit by the Justice Department. The s uit claimed that Mead's acquisition between 1957 and 1964 of six pape r wholesalers with 38 outlets caused an unlawful concentration in the paper industry. Mead agreed in 1970 to sell within two years 22 of t he outlets operated by Chatfield & Woods Company, acquired in 196 1, and Cleveland Paper Company.
Acquiring Businesses Unrelated to Papermaking in the 1960s
With the retirement of Chairman Howard E. Whitaker and President Geor ge H. Pringle in 1968, the new president, James W. McSwiney, began to acquire businesses that were unrelated to papermaking. During the 19 50s, and with the 1968 allocation of $50 million for the expansio n of the Escanaba mill, Mead had spent in excess of $400 million on maintaining and improving its papermaking facilities. Then its bus iness emphasis in paper products shifted from production to marketing . The paper markets, however, were fairly mature, and growth had to b e sought elsewhere. Mead's management anticipated a boom in family sp ending and homebuilding and bought companies that would benefit from such a boom. Mead's acquisition of an educational products supplier i n 1966 was followed in 1968 by the purchase of Woodward Corporation, a maker of pipe and pipe fittings, castings, and chemicals and of Dat a Corporation, which produced computer software. In 1969 Mead bought a furniture maker.
1970s Recession Leading to Divestments
These purchases did not shield Mead from an economic recession in the early 1970s. In 1971 the Escanaba mill was operating at a loss despi te a $15 million investment in upgrading the plant. Another $ 45 million investment went into the plant the following year, but pro fitability continued to elude the operation. As a result of its flagg ing profits, Mead began to sell off some of the acquisitions it had m ade only a few years earlier.
Mead managers sold more than $80 million of interests in low-grow th markets between 1973 and 1976. For example, lower-grade tablet pap er and low-volume colored envelope interests were eliminated. Mead so ld off facilities such as the corrugated-shipping-container plant it had built at a cost of $3.5 million in Edison, New Jersey, in 196 7, but which had never made a profit. Mead's corrugated-paper busines s was concentrated in Stevenson, Alabama in 1975. Mead also directed its attention to potential growth in paper; for example, the company responded to an anticipated hike in mail rates by investing $60 m illion in a computer-controlled paper machine to make lightweight pap er.
Mead retained substantially diverse operations, including furniture f actories, foundries, and Alabama coal mines. Despite these far-flung interests, in 1974, about 24 percent of Mead's pretax earnings came f rom paper, 35 percent from paperboard, and 5 percent from wholesaling . Metal products contributed 11 percent and furniture 5 percent, whil e about 20 percent was derived from sundry jointly owned forest produ cts operations. Mead lost an estimated $85 million in sales owing to strikes at several pulp and paper mills. By 1975, however, sales and profits were on the upturn.
In 1977 the consolidation of the box-making business became problemat ic as two small Pennsylvania paper-box makers, Franklin Container Cor poration, of Philadelphia, and Tim-Bar Corporation, filed a $1.2 billion antitrust suit against Mead and eight other box makers. The s uit charged the defendants with price fixing and with attempting to p ush smaller makers out of the market by buying independent box makers and opening operations where they would compete with smaller busines ses. The suit was one of the largest price fixing lawsuits in U.S. le gal history. Mead was found not guilty in a 1979 criminal trial, but a jury found the company guilty in a civil class-action suit of 1980. The other defendants had settled out of court prior to the civil sui t, and Mead was left with a potential liability of $750 million. Finally, Mead also settled out of court in 1982 for $45 million, considerably less than it might have had to pay in court, but still f ive times more than any of the other defendants paid.
1980s Highlighted by the Increasing Success of Mead Data Central B>
In 1979 Mead ranked fourth among forest products companies and hit it s all-time earnings peak of $5.19 a share while fending off an un wanted takeover by Occidental Petroleum Corporation. By the early 198 0s, earnings began to fall from their 1979 peak of $141 million t o a loss of $86 million in 1982--Mead's first loss since 1938. Am ong the factors responsible were a drastic decrease in demand for lum ber products and the costly settlement of the box suit. In addition, Mead's $1.5 billion five-year expansion plan begun in 1978 may ha ve equipped it to benefit from the next paper market boom, but it als o left the company in 1983 with a debt amounting to more than half of its total capitalization. Mead whittled away at the sum by selling s everal noncore businesses. By 1984 debt was down to 42 percent of cap ital, still a dangerously high level but better than in the previous year.
Business improved in 1984, as Mead's electronic information-retrieval services became profitable. Mead Data Central Inc. (MDC), the subsid iary whose primary product was LEXIS, a service that made case law an d statutes available through online computer searches, had been growi ng at a rate of 43 percent a year. Unveiled in 1973, LEXIS took in ab out 75 percent of the computerized legal research market by the late 1980s. The system's success was enough to spark its own court battle with West Publishing Company, which claimed that MDC intended to infr inge on its copyrights by distributing its information with West's pa gination. Mead in turn filed its own antitrust suit against West. The case was settled in 1988 with a licensing agreement permitting MDC t o offer West-copyrighted material via the LEXIS service.
By 1988 MDC boasted 200,000 subscribers, who bought $300 million worth of information. In 1988 LEXIS was responsible for MDC's 33 perc ent growth. LEXIS accounted for an estimated $215 million of MDC' s $307.6 million revenues. MDC's other products included NEXIS, w hich distributed newspaper and magazine reprints. MDC also carried ot her services, such as LEXPAT, which distributed patent information, a nd LEXIS Financial Information Service, which provided stock informat ion. Micromedex, a subsidiary acquired in 1988, provided information about poison and emergency medicine on compact disc.
In 1988, to enhance the scope of its service to attorneys, paralegals , and the court, MDC purchased The Michie Company, a legal publisher based in Charlottesville, Virginia, publishing statutes from 24 state s in printed form. MDC made these statutes searchable electronically through the LEXIS service and developed compact disc products combini ng case law and statutes.
In addition to the promising enterprises at MDC, in 1988 Mead unveile d Cycolor, a new paper for color photocopying. The specially coated p aper contained a chemical that, like an instant film, performs the re production internally, eliminating the complex machinery formerly nee ded to create color photocopies. Mead contracted several Japanese com panies to manufacture copiers compatible with the paper. By 1990, two Japanese companies were marketing copiers using Cycolor. Development of this product was costly, and it diminished Mead's earnings from 1 986 to 1990. After losing almost $200 million developing the spec ial paper, Mead closed its Cycolor division in December 1990.
While developing these nonpaper interests, Mead also undertook some r ationalization of its traditional sectors. Most important was the res tructuring of its paperboard operations to focus on the production of coated board. Mead dissolved its partnerships with Temple-Inland in the Georgia Kraft Company, sold six of its container plants, and doub led its coated board capacity. The Macon mill was sold in 1987 to Pra tt Holding, Ltd., an Australian firm; Temple-Inland took control of t he Rome, Georgia plant; and in 1988 Mead took full control of the Phe nix City coated board mill. In 1991, Mead completed a $580 millio n expansion of this mill, which added 370,000 tons of coated board an nually. Mead also sold its share of the Brunswick pulp and paper mill in August of 1988 and sold its recycled products business to Rock-Te nn Company in 1988.
Steven Mason Leading 1990s Turnaround
These rationalization moves were important, but Mead's revenues were flat from 1988 through 1992 and net earnings fell from a record $ 352.7 million in 1988 to $38.5 million in 1990, $6.9 million in 1991, and $71.6 million in 1992. After ten years as chairman a nd CEO, Burnell Roberts retired in 1992 and was replaced by Steven Ma son, who had been president and vice-chairman. A third-generation Mea d employee with 35 years at the company, Mason moved quickly and bold ly to turn Mead around.
In mid-1992 Mason announced the start of a three-year performance-imp rovement plan that aimed to increase both productivity and customer s atisfaction. As part of the plan, Mead laid off about 1,000 employees , setting up a $95 million special reserve for expenses such as s everance pay, retraining, relocation, counseling, and outplacement. A nother component of the plan called for overall productivity increase s of 3 percent per year, which would lead to annual savings of about $60 million. By year-end 1996 Mead had successfully hit this targ et, as it had achieved an overall productivity gain of 12 percent sin ce 1992. During this same period Mead's customer satisfaction ranking s markedly improved; in 1992 less than half of the company's business units were ranked first in customer satisfaction compared with Mead competition, but by 1996 three-quarters were ranked first.
Equal in significance to the performance-improvement plan was Mason's decision to refocus Mead on core value-added forest products. In add ition to selling its imaging and reinsurance businesses, Mead reduced its uncoated paper operations through the 1995 sale of the loss-maki ng Kingsport, Tennessee uncoated paper mill. The largest divestment, however, came in December 1994 when the company sold Mead Data Centra l to Anglo-Dutch publishing giant Reed Elsevier for $1.5 billion, taking Mead out of the electronic publishing business. Following the se moves, Mead had three core areas of operation: paper (primarily co ated paper, a sector with more growth potential than uncoated paper), packaging and paperboard, and distribution and school/office supplie s.
Much of the $1 billion after-tax proceeds from the MDC sale was u sed to pay down debt and make stock repurchases. Overall, from 1992 t o 1996 Mead was able to reduce its debt-to-capital ratio from 47 perc ent to 36 percent. Meanwhile, company shareholders were kept happy th rough repurchases of 8.7 million shares valued at $459 million.
To shore up its core areas, Mead spent heavily to upgrade and add mac hinery to its mills and also made one strategic acquisition. The Esca naba and Chillicothe coated paper mills were the recipients of large capital investment programs, with $200 million spent in 1994 and 1995. In November 1996 Mead increased its coated paper capacity by 60 0,000 tons a year with the $640 million purchase of a coated pape r mill located in Rumford, Maine from Boise Cascade. The mill also br ought with it 667,000 acres of woodlands, which increased Mead's timb er holdings to 2.1 million acres in eight states, a 65 percent increa se over 1992 holdings.
Mead's paperboard capacity also was increased through the 1996 comple tion of a 225,000-ton-per-year, $176 million corrugating medium m achine at the Stevenson mill. That same year the company announced a second phase to the capital upgrades at this mill, whereby the new ma chine's output would increase to 390,000 tons annually when virgin pu lp-making capability, a wood fuel boiler, and additional dryers were added by 1999. The second phase was expected to cost an additional 36;224 million.
Following record-breaking revenues of $5.18 billion and robust ne t earnings of $350 million in 1995--a year with market conditions favorable to paper companies--Mead celebrated its 150th anniversary in 1996 with solid revenues ($4.71 billion) and earnings ($19 5.3 million). Mason's various initiatives as chairman and CEO clearly had borne fruit. The company's future also seemed bright, as the Apr il 1996 appointment of Jerome F. Tatar, a 23-year Mead veteran and fo rmer president (over an eight-year period) of Mead's Fine Paper Divis ion, as president and chief operating officer (and expected Mason suc cessor) pointed to the likelihood that Mead would continue on a stead y course into the early 21st century.
The History of Westvaco
Born into a Scottish papermaking family, Westvaco founder William Luk e came to the United States in 1852. Ten years later he began running a plant for Jessup & Moore Paper Company in Harper's Ferry, West Virginia. Although employed by Jessup & Moore until 1898, he set up a small plant of his own with his two sons in 1889. Originally es tablished in Piedmont, West Virginia, a shift in the Potomac River an d a 1922 municipal name change eventually put the same facility in Lu ke, Maryland, where Westvaco still operated a mill in the late 1990s.
The mill was one of many mills that, during the late 1800s, imported and developed automated wood-pulping technologies. Called the Piedmon t Pulp and Paper Company, it became the first commercially successful sulfite pulp mill in the United States. Eventually U.S. makers used the sulfite process to make 83 percent of their paper. The Piedmont p lant employed 60, and by 1891 it began production of printing paper u nder the name West Virginia Paper.
U.S. timber supply and automated processes lowered the price of paper and accelerated its consumption. In 1897 West Virginia Paper merged with West Virginia Pulp Company of Davis, West Virginia and became We st Virginia Pulp and Paper Company (WVPP). It expanded along with the United States' growing demand, and it established a business headqua rters in New York City. In addition to its white printing paper, it m arketed pulp and chemical byproducts. In 1904 William Luke relinquish ed the presidency of the company to his son John Luke, who held the p osition until 1921. William Luke died in 1912, at which time the comp any had four mills operating in West Virginia, Pennsylvania, Virginia , and New York.
Post-World War I Diversification
During the post-World War I recession, prices plummeted and strikes h it two-thirds of the industry, including WVPP. Sales and earnings rea ched a record level, however, in 1920, which would be unequaled for 2 0 years.
While white paper production volume remained relatively constant, div ersification accounted for virtually all growth after World War I. Th e company produced its first kraft paper in 1921, the first year of D avid Luke's tenure as president. David Luke was another son of the fo under. Used in U.S. packaging since 1907, kraft paper replaced many w ood and textile shipping containers. As trees in the southern states were more suitable for kraft, between the world wars kraft production in the region skyrocketed. West Virginia's kraft output grew steadil y for 15 years but then leveled off.
In 1929 WVPP introduced containerboard, a heavier, corrugated paper u sed for boxes. Federally approved for shipping in 1914, use of this m aterial grew tremendously during the world wars.
During the 1920s WVPP began purchasing woodlands to supply its own wo od pulp, but self-sufficiency in fiber supply remained a long-term pr ospect. By the 1930s very little virgin timber remained in the southe rn states. WVPP continued to buy land close to its mills and eventual ly owned extensive woodlands. The immaturity of the trees in its hold ings, however, forced it to rely on outside suppliers for its pulp su pply and prevented diversification into finished wood products.
Another son of William Luke, Thomas Luke, became president in 1934, i nheriting a company with young diversification attempts and old mills . Three years later the company built a new mill to produce kraft and containerboard. By 1939 all five mills operated 24 hours per day.
The company's mills continued to operate at capacity throughout World War II. Wartime allocations made scarce the materials for expansion and repair, however. Although its facilities produced 20 percent more volume by war's end, WVPP's facilities emerged from the war badly in need of modernization.
David L. Luke Initiating a Series of Expansion Programs: 1945-63 B>
Ascending to president in 1945, David L. Luke, a grandson of the foun der, established the company's modern growth pattern. He immediately began the first of many expansion programs, spending the $17.5 mi llion the company had accumulated during the war. The company also us ed some of its cash surplus to acquire more land, selling the trees t oo mature for papermaking to provide additional financing.
Wartime research greatly expanded paper's uses, particularly in conta iners. Postwar demand continued to grow so explosively that only prod uction volume and market share concerned papermakers. The industry en joyed favorable prices, consolidating competition, and growing demand in all areas of paper products.
The industry set high prices, required more prompt payment, and used the cash influx to build new mills during the late 1940s. Capacity ca ught up with demand by the late 1940s, and surpassed it by the mid-19 50s, creating the need for more development leading to automation, pr oduct consistency, and new uses for paperboard. Although still relian t on white paper, WVPP put much of its postwar development efforts in to these areas.
Profit margins in the commodity-based paper industry remained slim du ring the 1950s, and a company's technological efficiency determined i ts success. The cyclicality of the industry meant that for the next 3 0 years papermakers invested in capacity additions. When they did so, they lowered prices precipitously. David L. Luke's expansion program s, however, coincided with the industry downturns. While occasionally requiring more debt than that to which the company was accustomed, a utomation allowed it to cut its work force for each of the next ten y ears.
The first major work stoppage since World War I occurred in 1952, whe n 4,000 employees struck. Labor relations flared up more frequently i n the postwar era, decreasing earnings on occasion, well into the 197 0s.
The company got more short-term use of its land in 1952 when it disco vered a use for its hardwoods. Traditionally, only younger and softwo od trees had been used for paper. Hardwoods on WVPP's land holdings u sed for paper allowed the company to reduce production costs.
Encouraged by the premature utility of its land, over two years the c ompany aggressively increased its holdings 75 percent to 749,000 acre s. Most of the money spent on expansion in the 1950s, however, went t o equipment modifications required by the technology.
WVPP sold its output mainly to companies that converted it to finishe d products. Priced as a commodity, paper prices often changed dramati cally, making earnings erratic. Demand, however, constantly increased , providing a greater cash flow.
Use of paperboard, a noncorrugated material for consumer product cont ainers, grew explosively during David L. Luke's presidency. Just as k raft paper and containerboard accounted for the company's prewar grow th, paperboard made up most postwar growth.
The 1953 acquisition of Hinde & Dauch Paper Company, a box maker, allowed WVPP to bypass distributors and represented the first major move toward integration. Hinde & Dauch (H&D) used WVPP's pape rboard to produce its parent company's first finished paper products. Bleached paperboard was found to take colors as well as printing pap ers, making it highly adaptable to packaging uses. In 1955 WVPP purch ased color presses to produce paperboard finished to client specifica tions.
West Virginia Pulp & Paper Company slowed expansion and improveme nt during the mid-1950s in its traditional sectors of printing papers , kraft, and containerboard, in favor of its new division. The compan y closed H&D's paper mills but built more than 20 new assembly pl ants for it during the next ten years, to make the most of H&D's knowledge of package design and experience with marketing finished pr oducts. These new plants allowed for the first increase in WVPP's wor kforce since World War II. By constantly automating to reduce labor c osts, its number of employees began to level off again by the early 1 960s.
WVPP purchased a Brazilian paper box maker in 1953. By the end of the 1950s, the Brazilian subsidiary financed its own production expansio n with fewer employees.
Demand for white printing papers began its first large increase in de cades in 1954 as a population boom and renewed prosperity increased c onsumption of printed materials. Demand for all paper products grew s o explosively in the 1950s that by 1956 the industry could not meet d emand. WVPP's earnings increased out of proportion to sales, peaking at $16.3 million in 1956 after five successive years of gains.
The industry responded by rapidly expanding its capacity. WVPP typica lly upgraded one machine at a time, rather than building or buying ne w mills. This method slowly consolidated production into larger and f ewer facilities. By 1959 WVPP completed its largest spending program, doubling capacity at the Luke mill; but when domestic growth slowed, prices collapsed. Despite annual sales records, for the next five ye ars WVPP's earnings fluctuated wildly--at one point dropping to as lo w as $8 million. Other factors that depleted earnings included ne w technology that produced more pulp from harvested trees as well as price wars following the entry of forestry and container companies in to paper. WVPP, which also sought to enter new markets, lowered price s as well.
Many companies waited for demand to catch up, but West Virginia Pulp & Paper continued its ten-year expansion plan. It focused on rela tively inexpensive converting plants rather than mills, but its debt grew more sizable. The timing of the expansion speeded WVPP's recover y; by 1962 demand began to catch up to the capacity added in recent y ears. The spending program was completed and the company issued only $60 million in bonds.
The length of the industry's recession and the growth of H&D enco uraged a renewed push toward finished products. In 1957 West Virginia purchased Virginia Folding Box Company, an assembler of cigarette pa ckaging. It eagerly expanded the acquisition and reorganized itself i nto six divisions, four of which were in the business of converting: bleached boards, building boards, fine papers, H&D, kraft, and me rchant paper. The company decentralized each division and provided ea ch with its own sales force.
As new materials, particularly plastic, threatened to replace older f orms of paper packaging, technical research intensified during the mi d-1950s and the early 1960s. Higher than the industry average, WVPP's research expenditures enhanced its reputation for product developmen t. Research and development spending quadrupled during the ten-year p eriod, ending 1961 at $4 million annually.
WVPP pioneered several processes, including the use of electronic con trols in production, the marketing of waste byproducts in the chemica ls division, the use of hardwoods, and the development of Clupak, a m ore elastic kraft paper. The company typically licensed or sold new t echnologies to pay for additional research.
By 1959 packaging grades of paper made up two-thirds of West Virginia 's production volume. By 1960 the demand for office and printing pape rs (at one time WVPP's primary product) provided growth to the long-s tagnant industry. Then oriented toward finished products and marketin g, WVPP set up a separate sales force to sell directly to printers an d paper converters.
When paper prices improved in the early 1960s, WVPP made the most of its recently completed investment program. The renewed efficiency and a change in its accounting method finally pushed 1965 earnings past the 1956 level. The downturn, however, had raised the competitive lev el of the industry. Like its competitors, WVPP came out of the late 1 950s and early 1960s more diversified, integrated, and less productio n oriented.
WVPP exported negligibly until 1960, when 3 percent of sales went ove rseas. Although it did not pursue international markets actively for another 20 years, in 1962 it set up an international division to expl ore manufacturing possibilities abroad and established foreign subsid iaries in Europe and Australia.
David L. Luke retired in 1963. During his tenure the company had chan ged dramatically. At the end of World War II, West Virginia Pulp & ; Paper Company had produced commodity grades of paper for a few hund red customers, but by 1959 it had its own sales force selling a varie ty of finished paper products to a customer base of 11,000. The compa ny had developed the marketing techniques and made the necessary acqu isitions to get it started in finished conversion while keeping debt to a minimum.
Diversification and International Expansion: 1963-88
Hesitant to join his family's company at first, David L. Luke's son D avid L. Luke III became CEO in 1963, after working 11 years for WVPP. He maintained the product development momentum initiated by his fath er and continued to upgrade efficiency with frequent spending program s. Like the rest of the industry, however, he reevaluated the use of debt in the coming decade. In 1962 the Luke family controlled 30 perc ent of the company's stock; by 1984 it controlled only 2 percent.
Still pursuing self-sufficiency in fiber supply, the company's land h oldings were constantly becoming more productive. WVPP acquired its m illionth acre in 1964. Research into forestry techniques produced hyb rids that were not only more disease resistant but capable of growing three times the wood fiber per acre than the strains of 15 years ear lier.
Shrinking timber reserves nationwide escalated land value further. Be ginning in the late 1960s, WVPP developed land of commercial value an d purchased additional timberland closer to its mills. Operating in 2 2 states, this latter strategy proved important when transportation c osts inflated during the 1970s. Lower land values in the early 1970s allowed additional land purchases. Even though these lands provided o nly 10 percent of its raw material requirements, in the long term the y stood to raise the degree of self-sufficiency.
During the mid-1960s, the growth rate in earnings once again outpaced sales. Operating near capacity once again, the company was able to r educe the debt it had assumed to complete its expansion program. Most of this investment went to make its three main mills more efficient. Nearly half of sales in 1967 came from products introduced in the pr evious ten years. This success and resulting heavier cash flow tempte d the company to offer consumer products, a segment profiting several of its competitors. WVPP purchased C.A. Reed Company in 1968, maker of disposable paper products. Although the disposables market soared in the 1960s and 1970s, WVPP sold it after only seven years.
White printing papers used by business systems also boosted sales. Al though the industry began to see overruns again, WVPP began another e xpansion program in 1967. It included the building of a new white pap er mill in Kentucky. At $90 million, it was the largest project e ver attempted by the company. In 1969 the company changed its name to Westvaco Corporation. Growing dependence worldwide on North American pulp and timber helped make Westvaco less dependent on the health of the domestic economy, exporting 10 percent of sales by the early 197 0s.
Commodity-type production continued to plague the industry. In the ea rly 1970s the industry suffered once again from too much capacity, hi gher production costs, and low prices. Tougher environmental standard s and a weaker economy hastened closure of plants industrywide. Westv aco closed plants, but its frequent incremental upgrades kept shut-do wn costs low. Leaner by default, turnaround came quickly.
During the early 1970s the government kept paper prices and labor cos ts stable but put a freeze on earnings as well. U.S. paper production reached record levels. By 1972 the government loosened its restricti ons on paper somewhat, but fierce price competition negated a 4 perce nt price increase approval in 1971.
Wage and price controls were lifted altogether in 1974, allowing the industry to pass on production costs. Like the industry's recession i n the early 1960s, these price controls contributed to integration, a s producers sought to increase earnings in areas outside federal cont rol, particularly finished paper products.
The paper industry was now increasingly accountable to federal regula tions. The Federal Energy Administration forced Westvaco and 12 other paper companies to convert certain plants to coal burning from oil. The Department of Justice blocked an attempt by Westvaco to acquire t he remainder of U.S. Envelope, the largest domestic producer of envel opes, of which Westvaco owned 58 percent. The paper industry had been investigated repeatedly for antitrust compliance and been named in p rivate suits. Although Westvaco settled suits out of court it had nev er been indicted.
In the ten years ending 1975, Westvaco almost doubled sales, while si multaneously reducing its workforce. During the mid-1970s demand in a ll sectors began to catch up with capacity, but growing production co sts dampened earnings.
Energy shortages of the early 1970s prompted Westvaco to turn to its land holdings once again by mining coal for its own consumption. By 1 974 it achieved 40 percent fuel self-sufficiency by burning its own w aste from the production process. Such conservation efforts would hel p earnings substantially in the late 1970s.
The 1980s were turnaround years for papermakers. The industry started to spend on capacity once again. Although Westvaco now converted mor e than one-third of its paper production in its own plants, growth in the use of the personal computer and in the publishing industry gave way to rapid increases in demand for Westvaco's traditional printing papers.
By the mid-1980s, Westvaco emerged from one of the worst five-year pe riods for the industry with six straight earnings records. In additio n, it had completed its spending program. These programs drained earn ings, but at their conclusion the company earnings jumped dramaticall y, and the company produced more paper with larger, more efficient un its and less labor. David Luke III began four such programs in his 24 years as CEO.
By employing its own sales force, Westvaco diversified not by acquisi tion, but by tailoring products for customers. Research and sales for ces emphasized new uses for bleached board in microwave food packagin g and liquids packaging.
During the mid-1980s, the company took a series of antitakeover steps . Although at record levels, debt was lower than in most companies in the forest products and packaging industries. David Luke III's final spending program of $1.6 billion was financed 80 percent interna lly. Unlike those before it, the program intensified product developm ent instead of production efficiency.
Westvaco set up trade offices in Tokyo and Hong Kong in the mid-1980s to tap the skyrocketing Asian and Pacific markets. Finished products paved the way for increased activity overseas, and by the late 1980s exports reached 15 percent of sales. The consistently profitable Bra zil operations began to export, after holding 20 percent of Brazil's corrugated box market for decades.
Significant growth in the printing industry in the late 1980s led to capacity expansion. Westvaco emphasized heavier-weight printing paper s, despite the industry's cyclicality, which forced buyers to cut cos ts occasionally.
Emphasis on "Differentiation" in the Late 1980s and Early 1990s
During David Luke III's 24 years as CEO, Westvaco did more than most papermakers to free itself from the cyclicality of commodity producti on. His program that accomplished this, "differentiation," continued under his successors--his brother John A. Luke, who became CEO in 198 8, and John A. Luke, Jr., whose attainment of the CEO position in 199 2 represented the fifth generation of Lukes at the company helm. For Westvaco, differentiation meant manufacturing specialized products th at met specific market segment needs. By lessening its reliance on co mmodity grade products, Westvaco would thus protect itself from the i nevitable downturns of the cyclical paper industry; and, in practice, differentiation had proved to be a successful strategy for Westvaco through the mid-1990s.
Westvaco's specialty chemicals were a prime example of differentiated products. This business segment was bolstered in 1992 with the acqui sition of North American Carbon. By 1995 Westvaco held a virtual mono poly of the U.S. market in carbons for automotive emission control de vices, a sector that generated $15 to $20 million each year. The company sought to strengthen its position further when it announc ed late in 1995 a plan to spend $80 million to build a new activa ted carbon plant near its Wickliffe, Kentucky, fine papers mill, with operations scheduled to begin in mid-1997.
In the early 1990s differentiated products accounted for two-thirds o f company sales, compared with only one-third a decade earlier. John A. Luke, Jr., aimed to increase this further, to about three-quarters of overall sales. A major step toward this goal came in 1995 when We stvaco sold its corrugated container operations to Weyerhaeuser for a n estimated $85 million, the rare occurrence in company history o f an asset sale. Westvaco's exit from the corrugated container busine ss promised to free up capacity at its Charleston, South Carolina, mi ll for production of additional differentiated products, such as deco rative laminates for kitchen countertops, which were made from satura ting kraft paper.
Westvaco also continued to expand overseas as another basis for futur e growth. Subsidiaries were established in South Korea and Singapore in 1992 and in China, the Czech Republic, and India in 1995. Brazil, however, continued to be Westvaco's largest foreign beachhead, and th e company's operations there were increased in 1996 with the opening of a new container plant in Pacujus and the purchase of a consumer pa ckaging plant in Valinhos. Almost one-quarter of Westvaco's 1996 reve nues were generated outside the United States, and John A. Luke, Jr., set a goal to increase that figure to one-third within ten years.
Westvaco enjoyed an exceptionally strong year in 1995, fueled in part by a market upturn, with record revenue of $3.27 billion and rec ord net income of $280.8 million. The company's stock split three for two that August. Meanwhile, environmental issues came to the for e when the Council on Economic Priorities placed Westvaco on its 1995 list of the country's eight worst corporate polluters, citing 1992 t oxic emissions more than three times the industry average. For its pa rt, Westvaco announced plans in early 1995 to spend $140 million to upgrade its bleached pulpmaking plants so as to eliminate the use of elemental chlorine. Environmental groups had been lobbying paper c ompanies to eliminate this use of chlorine because of the creation of the highly toxic chemical dioxin as a byproduct.
In early 1996, David L. Luke III retired from the Westvaco chairmansh ip, and John A. Luke, Jr., added the post of chairman to his roles as president and CEO. In September of that same year Westvaco formed a joint venture with SCANA Corporation to build and operate a $160 million power cogeneration facility at Westvaco's North Charleston, S outh Carolina, kraft paper mill. The new facility would enable Westva co to make future expansions in its manufacturing operations at North Charleston. The company also announced plans to build a $20 mill ion technical center in North Charleston with laboratories and office s for its specialty chemicals division.
From the late 1980s through the mid-1990s, Westvaco had been one of t he steadiest-performing companies in the paper industry. Westvaco's e mphasis on differentiated products and its reinvestment programs may have cut earnings over short-term periods, but it provided a sounder basis for long-term growth. The company was also well positioned to t ake advantage of an increasingly open world market, all of which adde d up to a promising future.
A Merger in the New Millennium
By the start of the new millennium, the paper and forest products ind ustry was undergoing significant change by way of consolidation. An i nflux of companies offering similar products forced prices to fall an d left paper concerns scrambling to shore up profits and control cost s. Large companies, including International Paper Company and Georgia -Pacific Corporation, were buying up smaller companies and Mead and W estvaco alone were considered to be takeover targets. The two compani es, however, decided to join forces in a $3.1 billion deal that w ould position it as the second largest producer of coated papers.
Before its merger with Mead, Westvaco had bolstered its holdings with strategic acquisitions including a bleached paperboard mill in Evada le, Texas, and two packaging suppliers--Mebane Packaging Group and IM PAC Group Inc. By 2001, both Mead and Westvaco were pursuing options that would allow them to remain competitive in the ever-changing indu stry. Mead and Westvaco struck a deal in August 2001 and announced th eir intent to merge.
The union that created MeadWestvaco was viewed as a merger of equals and because the deal was structured as such, the new company would as sume very little debt. Meanwhile, its competitors were straddled with significant debt due to recent acquisitions. As a stock-for-stock ex change, Mead shareholders received one share of the new company for e ach share of Mead stock held as well as a cash payment of $1.20 p er share. Westvaco shareholders received 0.97 shares of MeadWestvaco for every share of Westvaco stock held. Westvaco's offices in Connect icut became MeadWestvaco's company headquarters.
The deal was completed in January 2002 and MeadWestvaco was born. In one fell swoop, the company had become a major player on par with the likes of International Paper and Georgia Pacific, with operations in coated and specialty paper, packaging, consumer and office products, and specialty chemicals. The company expected to save at least $ 325 million as a result of the merger, and as part of the integration process, it shuttered three paper machines and facilities in Chillic othe, Ohio, as well as a plant in Front Royal, Virginia.
With John Luke, Jr., at the helm of MeadWestvaco, the new company mad e several keys moves over the next few years. As part of its acquisit ion strategy, it purchased pharmaceutical packaging manufacturer Kart oncraft Ltd. of Ireland and stationery products concern AMCAL Inc. Ti libra S.A. Productos de Papelaria, an office products manufacturer ba sed in Brazil, was acquired in 2004.
MeadWestvaco also began divesting certain assets, including parcels o f forestland. In 2003, the company announced plans to cut 1,000 jobs and close several plants in order to increase earnings. As part of th at plan, it consolidated its consumer and office products operations.
The company made its most significant move in January 2005 when it an nounced plans to sell its papers business to NewPage Corp., a private buyout company controlled by Cerberus Capital Management LP. The 6;2.3 billion deal included paper mills in Ohio, Michigan, Maryland, Maine, and Kentucky, and 900,000 acres of forestland in Illinois, Ken tucky, Michigan, Missouri, Ohio, and Tennessee.
The sale of these assets was a major initiative in MeadWestvaco's str ategy to focus on its packaging products business. The sale also woul d allow the company to pay down nearly $900 million in debt. NewP age completed its purchase in May 2005, leaving MeadWestvaco with thr ee core segments: Packaging, Consumer and Office Products, and Specia lty Chemicals. MeadWestvaco had indeed experienced significant change in the early years of the new millennium, but as 2005 came to a clos e, the company's management team was confident that its activities ov er the past several years left it well positioned for success in the future.
Principal Subsidiaries: MeadWestvaco Coated Board, Inc.; MeadW estvaco Consumer Packaging Group, L.L.C.; MeadWestvaco Forestry, L.L. C.; MeadWestvaco Maryland, Inc.; MeadWestvaco Texas, L.P.; MeadWestva co Virginia Corporation; Rigesa, Celulose, Papel E. Embalagens Ltda. (Brazil).
Principal Divisions: Packaging; Consumer and Office Products; Specialty Chemicals.
Principal Competitors: Crown Holdings Inc.; International Pape r Company; Weyerhaeuser Company.
- Key Dates:
- 1882: Colonel Mead establishes the Mead Paper Company.
- 1889: William Luke establishes the Piedmont Pulp and Paper Com pany.
- 1897: West Virginia Paper merges with West Virginia Pulp Compa ny to become West Virginia Pulp and Paper Company (WVPP).
- 1927: The Mead Paperboard Corporation is founded as a holding company for the company's paperboard operations.
- 1930: The Mead Corporation incorporates.
- 1955: Mead enters the container business with the acquisition of Jackson Box Company of Cincinnati, Ohio.
- 1969: WVPP changes its name to Westvaco Corporation.
- 1977: Franklin Container Corporation of Philadelphia and Tim-B ar Corporation file a $1.2 billion antitrust suit against Mead an d eight other box makers.
- 1994: Mead Data Central is sold.
- 1995: Westvaco sells its corrugated container operations.
- 2002: Mead and Westvaco merge to form MeadWestvaco.
- 2005: The company sells its writing and printing papers busine ss and 900,000 acres of forestland.
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