Awakening a sleeping giant: New CEO charged with reinvigorating O-I

Steven McCracken, outside the firm's downtown headquarters, says O-I is an underperformer with great potential.

For a man whose company faces big problems, Steven McCracken smiles a lot.

Mr. McCracken, the new chairman and chief executive officer of Owens-Illinois Inc., has a big job ahead: trying to turn around a lethargic giant that has been a stock-market disappointment in recent years.

He's an outsider, the first CEO in O-I's 101-year history not from the glass industry.

Despite the worries of $6.7 billion in debts, plus asbestos-injury claims totaling $2 billion in the last decade, Mr. McCracken, 51, has much to smile about.

He was hired to bring a new look, a new kind of leadership to O-I, Toledo's second-largest Fortune 500 company (behind only Dana Corp.) and now the world's largest glass-container manufacturer.

And he has just moved his young family - three little ones and another on the way - to Ottawa Hills, getting back to his Midwest roots.

"O-I is a great company with a great heritage, but it's more of a sleeping giant than I had perceived," said Mr. McCracken, who took the glass company's top executive job April 1 after 29 years as an engineer and later an executive with E.I. DuPont De Nemours & Co. Just before joining O-I he was president of Invista, a DuPont textiles unit.

A leader who says his style is approachable and team-based, he acknowledged the company faces difficult tasks to reduce its debt, solve its asbestos liability problem, and regain investors' respect after losing nearly $1 billion last year alone.

"Change is needed," he said. "We need a transformation O-I has great potential, but the company has underperformed."

One possible change, which may not be well received by Toledoans, is that the future base of the firm could be moved from downtown.

The firm's lease at One SeaGate, its home for 22 years, expires Sept. 30, 2006, and one option would be to move the headquarters to its Levis Development Park in Perrysburg.

"I don't know what we're going to do," said the new leader.

"I would like to see facts and data and how it would impact our people and the community. We will take that decision very seriously. It's not something we would take lightly. I think roots are important."

He is praised by those who picked him. John "Jack" McMackin, Jr., a longtime O-I board member and member of the panel that chose the new CEO, said, "We asked him to re-energize the company, reinvigorate it. We wanted him to empower the employees and then turn them loose."

Mr. McMackin, a Washington, D.C., attorney, said he is pleased. "Steve is exactly what I had hoped for, and the reaction to Steve by the people in the company has been just terrific."

Mr. McCracken replaced Joseph Lemieux, who retired as CEO and chairman in December at the age of 72, after 46 years with the company, the last 13 as its leader. Industry experts viewed Mr. Lemieux as capable but not dynamic.

Even though Mr. McrCracken has been in his office on the 27th floor of One SeaGate only four months, he has put two major accomplishments behind him: the acquisition of BSN Glasspack, Europe's second-largest glassmaker, for $1.4 billion, in June and the sale of O-I's blow-molded plastic-container operation for $1.2 billion to Graham Packaging Co. LP, announced last week.

Both moves should strengthen O-I's core business of glass containers, and the sale will help O-I pay off some of its debt.

The net effect of the transactions is that the revenue of the firm that's No. 298 on the Fortune 500 list should be greater than the $6.2 billion it took in last year, and it will have more than 31,000 employees worldwide, up slightly from last year.

But one key problem to be faced is the debt. Its level disturbs analysts and has resulted in junk-bond ratings for the firm. It has contributed to analysts' having reservations about recommending the stock.

The sale of Graham Packaging should reduce the debt by about $1 billion.

Another widely watched problem is the firm's 32,000 asbestos-injury claims stemming from asbestos-containing products - used for insulation and fire protection - that O-I made until 1958. Asbestos has caused illness in some who worked with it.

The firm has set aside an average of $200 million a year in recent years to cover the claims. The company leader maintained, as did his predecessor, that the asbestos problem is "limited, manageable, and declining."

Several industry analysts have warmed up to O-I recently and have put "buy" ratings on the stock.

Among them is George Staphos, with Banc of America Securites in New York, who said, "Thus far, I'm impressed, but it's still early. O-I doesn't need any help in glass containers; it essentially invented that industry.

"What O-I needs is new insight on how to run the company better. The company has immense opportunity to improve its cash flow and [to lower] costs."

In recent weeks, the company's stock has traded in the $14 to $15 range, considerably below its late 1990s high of $49 a share but well above its all-time low of $2.50, hit several years ago after an industry asbestos scare.

The firm headquartered in One SeaGate on the downtown Toledo riverfront announced a healthy profit of $82 million for the second quarter.

The company chief has made a good impression on investors, said Mr. McMackin, the board member. "One of many things investors like about Steve is the way he has put his own money on the line for O-I stock," he said.

Mr. McCracken said top officers should be linked financially to their firms. Immediately after he joined O-I, he paid more than $750,000 to buy 53,496 shares, and the firm awarded him 155,000 shares of restricted stock - worth about $2.2 million at the time of the grant - that can't be sold for years.

In addition, his employment agreement calls for an initial option on 335,000 shares exercisable over the next five to six years. His salary is set at a minimum of $700,000 a year, and his bonus for 2004 is to be at least $350,000 under terms of the contract.

He also has a substantial investment in Toledo. In July, he and his wife of nine years, Judy, bought a home and adjacent lot in Ottawa Hills for nearly $1.2 million. The couple have daughters 6 and 7 and a son not yet 2, and his wife is due to deliver their fourth child, a girl, this month.

"I've lived lots of places, and Toledo is great," he said.

The executive has plans to motivate the work force at his Toledo firm.

For example, the company is studying ways to change O-I's benefits system to save as much as $20 million a year and still leave workers better off than their peers at other firms, Mr. McCracken recently told analysts.

"You can't get ahead with a non-motivated work force," he said. "If we're not fair, they're going to kick our butt. We're not here to drive the company forward on the backs of employees."

O-I was named by Forbes magazine as one of its five turnaround candidates for the year, largely because of the naming of a new CEO.

With an admitted steep learning curve because he doesn't have a background in glass, he said he won't serve on other corporate boards for the foreseeable future.

"That's part of the deal," he said. "I need to concentrate on O-I."

He said he feels no pressure to make short-term decisions that will substantially alter the company and will look to achieve growth small, niche markets. One analyst last week said the company needs to reduce its debt before it embarks on buying other businesses.

Mr. McCracken, a high school varsity tennis player and a magna cum laude graduate with a mechanical engineering degree from Rose-Hulman Institute of Technology in Indiana, has a flair for colorful phrases and use of sports metaphors.

The self-described "common guy" who said he enjoys watching sports and comedy on TV emphasized that he likes to be around people with opinions.

"I want all the divergent opinions I can get," he said. "I like to gather as much data as I can, and then I make the decision, and I have to live with it."

Contact Homer Brickey at: homerbrickey@theblade.com or 419-724-6129.