The Spokesman-Review

Reynolds Will Split Apart In Attempt To Boost Profits

Reynolds Metals Co., aiming to reverse a slump in profits, said it’s reorganizing into six worldwide business units in a plan that includes selling low-growth operations and possibly spinning off its packaging business.

The world’s third-largest maker of aluminum and aluminum beverage cans said the April 1 reorganization will streamline the number of businesses from 20 operating units to focus on global aluminum markets with the greatest profit potential.

The Richmond, Virginia-based company, which began cutting more than 1,000 jobs last year as profits plunged amid sagging aluminum prices, said it will pare more of its workforce of 30,000 as it reorganizes.

Reynolds Metals, whose stock has failed to keep pace with rival Aluminum Co. of America, has been studying a spinoff of its packaging business since last fall. Chairman and Chief Executive Jeremiah Sheehan said the new structure will “better position” the packaging business to become an independent company, should Reynolds decide to spin it off.

Reynolds Metals shares fell 75 cents to $62.75 Thursday. (Stock markets were closed on Friday for the Good Friday holiday.) Analysts said investors wanted more specific details on which businesses the company plans to sell and spin off. Reynolds said details will be announced in the second quarter.

Analysts said they expect Reynolds to spin off the packaging business — which makes foil, plastic wrap and other products —and perhaps its can business as well. Together, packaging and cans had $2.45 billion in sales last year, 35 percent of the company’s $7.02 billion in revenue.

“Reynolds has lost ground relative to its competitors,” said Thomas Van Leeuwen, a metals analyst at Credit Suisse First Boston in New York. “It’s becoming increasingly likely that a spinoff will occur. Whether that includes the can business remains to be seen.”

One of the six business units will be global packaging and consumer products, which includes products ranging from Reynolds Wrap to flexible packaging for the tobacco, food and drug industries.

The others are beverage cans; transportation; construction and distribution; metals and carbon products; and bauxite and alumina, the raw materials used to make aluminum.

Reynolds Metals said Thomas Christino, 57, will head the packaging and consumer products unit. William Leahey Jr., 47, will head the global can unit. Both men will report to Sheehan, who steered the expansion of the can business before he was promoted to president in 1994 and CEO last October.

The company said Vice Chairman Randolph Reynolds will be responsible for the other four units, with the heads of each units reporting to him. Vice Chairman Wilt Wagner will carry out the sale of businesses.

Reynolds Metals is already selling businesses. It said said last week that it expects $240 million from the sale of its U.S. residential construction products operations to AmeriMark Inc. and from several pending asset sales.

Charles Bradford, a metals analyst at UBS Securities, said Reynolds may hold on to its beverage can business, which makes more than 20 billion cans a year. While the business has been hurt by sluggish demand in the U.S., there’s high growth potential outside the country, analysts said.

The changes come on the heels of a separate plan at Reynolds last fall to boost pretax profit by $100 million, or $1 a share, this year. Under that plan, the company cut costs and capital spending, redeemed convertible preferred stock to save cash and began cutting 3.5 percent of its workforce through firings and attrition.

Hurt by weaker prices for aluminum products, the company’s firstquarter profit from operations is expected to fall to 9 cents a share from $40 million, or 48 cents, a year ago.

Reynolds has said it will record a first-quarter gain from the sale of the residential construction products business. A year ago, charges reduced net income to $2 million, or a per-share loss of 12 cents after preferred dividends.



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