a subscriber emailed me some thoughts on BLL that i thought were worth sharing:

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Rexam was a bit of a mess – terribly-timed M&A into plastics in 2007, subsequent dividend cut during the GFC, etc., so I tended to believe BLL that Rexam was irrational. I forget the whole backstory, but Rexam really got lucky winning the Red Bull contract before Red Bull took off. They were also first movers in Brazil, which has super-higher soda per capita consumption. Their financial struggles post GFC had a silver-lining, as it kept them out of China, which has proven to be a quagmire for BLL and CCK. No oligopoly in China…

The regional efficient scale moats are important to the story. You talked about regional transportation costs (while beverage plants are not co-located, they are in the same zip code), which is also true. Basically, BLL, CCK, and Ardagh have ROICs > WACC in key filling areas (like Atlanta for Coke), but the spread isn’t wide enough where a newcomer could build a new plant and keep the region value accretive to all parties. Also worth noting on the moat that global beverage companies want consistent product across regions, so they like to work with BLL, CCK, and Ardagh across geographies. Makes it really hard for a newcomer to get sufficient volume. In fact, Ball only builds can plants in new countries if they secure volume contracts from a global producer like Coke or Pepsi.

The biggest industry change since I covered the group is the boom in aluminum can usage. Glass was capitalizing on the craft beer boom in the early 2010s. It wasn’t until Sam Adams went to cans that things started to change. And then the seltzer water craze, etc. Just an amazing development in the typically slow-moving packaging industry.

I don’t know a lot about Ardagh, as they were private when I covered the sector. My impression was that they were more rational on pricing than REX, so as you note, a net positive for the remaining leaders.

CCK is the maverick of the group. They’re really aggressive on leverage and geographic expansion. Food cans are also a really tough market…