American Chemical Corporation
Bilal Al- Qureshi, Said Business School, University of Oxford 2010
American Chemical Corporation
HBS Case Number: 9-290-102
Executive Summary
The American Chemical Corporation (AMC) is a large, diversified chemical producer. In 1979,
AMC was forced to issue a tender to sell a Sodium Chlorate plant, near Collinsville, Alabama.
Dixon, a specialty chemicals company, was willing to purchase the aforementioned plant for
$12m with the option to invest a further $2.25m on laminate technology. The subsequent investment in Laminate technology was expected to eliminate graphite costs and reduce power consumption at the Collinsville plant by 15% to 20%.
We will evaluate the acquisition of the Collinsville by Dixon at the proposed price.
Table 1 identifies the assumptions that have been used for the evaluation of this acquisition.
Table 1
Assumptions
Reference
Laminate Technology reduces power by a mean of 17.5%
Laminate Technology is depreciated over 10 years Sodium Chlorate price growth is 8%, per annum Power cost (per KWH) growth is 12%, per annum Plant Life is 10 years
Pg 3, HBS 9-280-102
Plant Salvage Value is zero
Pg 1, Assessed work Sheet
EBIT is flat after 1984
Pg 1, Assessed work Sheet
Capital Expenditures: $600,000 per annum after 1984
Net Working Capital Remains flat after 1984
Pg 1, Assessed work Sheet
Definition of “Flat”
Pg 4 http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf
6.5% is the Equity Risk Premium
Slide 21, Risk and Return, class notes-
Tax rate is 48.69%
http://www.investopedia.com/articles/04/012104.asp
Exhibit 7, HBS 9-280-102
Pg 3, HBS 9-280-102
Pg 4, HBS 9-280-102
Pg 4, HBS 9-280-102
Pg 1, Assessed work Sheet
Pg 1, Assessed work Sheet
From 1984 to 1989, the following growth rates are used
Exhibit 8 , HBS 9-280-102
4 year Growth rate is used for Variable Costs
Capital investment is based on figures from
1980-1984
PPE and depreciation is based on figures
American Chemical Corporation
HBS Case Number: 9-290-102
Executive Summary
The American Chemical Corporation (AMC) is a large, diversified chemical producer. In 1979,
AMC was forced to issue a tender to sell a Sodium Chlorate plant, near Collinsville, Alabama.
Dixon, a specialty chemicals company, was willing to purchase the aforementioned plant for
$12m with the option to invest a further $2.25m on laminate technology. The subsequent investment in Laminate technology was expected to eliminate graphite costs and reduce power consumption at the Collinsville plant by 15% to 20%.
We will evaluate the acquisition of the Collinsville by Dixon at the proposed price.
Table 1 identifies the assumptions that have been used for the evaluation of this acquisition.
Table 1
Assumptions
Reference
Laminate Technology reduces power by a mean of 17.5%
Laminate Technology is depreciated over 10 years Sodium Chlorate price growth is 8%, per annum Power cost (per KWH) growth is 12%, per annum Plant Life is 10 years
Pg 3, HBS 9-280-102
Plant Salvage Value is zero
Pg 1, Assessed work Sheet
EBIT is flat after 1984
Pg 1, Assessed work Sheet
Capital Expenditures: $600,000 per annum after 1984
Net Working Capital Remains flat after 1984
Pg 1, Assessed work Sheet
Definition of “Flat”
Pg 4 http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf
6.5% is the Equity Risk Premium
Slide 21, Risk and Return, class notes-
Tax rate is 48.69%
http://www.investopedia.com/articles/04/012104.asp
Exhibit 7, HBS 9-280-102
Pg 3, HBS 9-280-102
Pg 4, HBS 9-280-102
Pg 4, HBS 9-280-102
Pg 1, Assessed work Sheet
Pg 1, Assessed work Sheet
From 1984 to 1989, the following growth rates are used
Exhibit 8 , HBS 9-280-102
4 year Growth rate is used for Variable Costs
Capital investment is based on figures from
1980-1984
PPE and depreciation is based on figures
Bibliography: Copeland et al, 1996, Valuation, Measuring and Managing the Value of Companies,2nd Edition, Mckinsey & Company, Inc.