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Published: Tuesday, 12/7/2004

Wall Street taking notice of O-I's achievements, CEO declares

BY HOMER BRICKEY
BLADE SENIOR BUSINESS WRITER

Owens-Illinois Inc., for years a financial underachiever and stock-market underperformer, is starting to fulfill its promise, said Steven McCracken, chief executive officer for the last eight months.

"There's a growing realization that O-I is the best at what it does and is beginning to focus on what it does best," Mr. McCracken, who also is chairman of the glassmaker, told The Blade. " The market is regarding us pretty highly."

After the sell-off of 25 million shares began last week - shares owned by Kohlberg Kravis Roberts & Co. investors - O-I's stock closed at $23.02 a share, up 94 percent from the beginning of the year and up 36 percent since Sept. 1. It closed yesterday at $22.72.

The stock sale, being handled by five large investment-banking firms, closes tomorrow, by which time KKR's holdings of O-I stock will diminish from 24 percent to just over 7 percent.

Those holdings could drop to less than 5 percent if the underwriters exercise an option to buy up to 3.75 million additional shares from the New York investment firm. It is likely that many of the buyers are mutual funds and other institutions.

Mr. McCracken, a former DuPont executive, said he agreed to an interview not because of the diminution of ownership by KKR but because he wants "to try to be more open" than O-I executives have been in recent decades. His predecessors rarely talked to the press.

Toledo's second-largest Fortune 500 firm and the world's largest glass-container maker completed two major objectives this year with the acquisition of a large European glassmaker and the divestiture of most of O-I's plastic-bottle plants, the CEO said.

But the firm still faces some tough decisions. One is whether to stay in the downtown One SeaGate headquarters when the lease expires Sept. 30, 2006, or to move to another location, such as the firm's Levis Development Park in Perrysburg.

"We are now in the evaluation mode," he said of One SeaGate, the firm's home for 22 years.

"We can see the calendar [and] we would rather decide sooner than later. We have attractive alternatives. There are many variables."

Real-estate experts say the multinational corporation will have to make its decision before the end of 2005.

Mr. McCracken said O-I "takes that kind of decision very seriously roots and [employees'] lives are very important."

The company leader hinted that O-I's board in the future will have more international representation and more manufacturing executives because the firm is more "Eurocentric and more [focused] on glass" than it was a year ago.

The board is likely to include a couple of KKR executives for at least a few years. The two remaining on the board - out of six at one time - have terms expiring in 2006 and 2007.

"I have found the KKR people to be very good," said Mr. McCracken. He said they often ask tough questions.

The CEO, who often talks in sports metaphors, said the goal is "to stay focused on plays you want to run. Slowly but surely, we're coming together as a team, and it feels good. This team can win. We are winning, starting to put up some W's. We just need to put up a string of [good] quarters to demonstrate we are executing."

Company employees, he said, need to work differently, not just harder, to help the firm improve. The company has 30,000 employees.

Mr. McCracken, who called O-I a "sleeping giant" shortly after he took over as CEO, said the firm is making progress on reducing its debt (still over $5 billion), settling its asbestos-injury claims (a $2 billion problem in the last decade), and improving its credit rating (its bonds are "junk" quality).

Analysts have forecast the company's 2005 profit at about $300 million, not a record but considerably better than its performance in recent years.

In three of the last four years, O-I lost a total of $1.7 billion, mostly because of asbestos and goodwill writeoffs.

Some of the recent run-up in the firm's stock price may have resulted from investor optimism that the Republican-dominated Congress will set up an asbestos-claims fund, alleviating some burden on companies such as O-I.

"It has been a good year for us," said Mr. McCracken. "We are a top-tier performer. The future is bright, and the street [Wall Street] agrees."

Contact Homer Brickey at:

homerbrickey@theblade.com

or 419-724-6129.



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