Dow Pbb
Dow Chemical
By
Kai Draaisma
Laurens de Blij
Diedrik Oost
Eva Sloff
Lesley Flohil
13-11-2012
Duisenberg School of Finance
Executive summary
1. Summary of Facts.
With an annual revenue of $20.2 billion Dow held the leading market position worldwide in ethylene and polyethylene (exhibit 1b). To consolidate all of Bahia Blanca’s polyethylene activity under Dow’s control a three-stage plan was developed. The first stage involved taking control of PBB, the second stage involved acquiring Polisur’s two polyethylene plants, and the third stage involved building a new ethylene cracker. To determine a proper risk premium Dow had to consider possible country risks. Currency and government policy risk may have had an impact because of possible future crises and changing government policies relevant to foreign investments. Furthermore, because of the ending of the convertibility law Dow also had to consider a possible exchange-rate risk. Dow created a holding company, Dow Investment Argentina, to invest in the project, then they had to decide whether they will use general corporate funds or raise debt for the PBB bid.
2. Statement of problem
3.1 General analysis
Rational for Acquisition of PBB
Dow Chemical’s corporate strategy is to look for horizontal- and vertical integration, achieve technological leadership and gain international presence. Dow will benefit from a more integrated production process by lowering their cost of production. PBB will also create stable supplies of ethane for Dow allowing them to achieve operating rates near 100%. Cracking ethane in the region will result in lower operating risk for Dow meaning the supply/input risk for the production of Polyethylene. An increase in the production output of Dow will allow them to benefit from economies of scale. Overall Dow will gain technology leadership and operational excellence from adding PBB to their company and enhance them with a costleader position in the market
By
Kai Draaisma
Laurens de Blij
Diedrik Oost
Eva Sloff
Lesley Flohil
13-11-2012
Duisenberg School of Finance
Executive summary
1. Summary of Facts.
With an annual revenue of $20.2 billion Dow held the leading market position worldwide in ethylene and polyethylene (exhibit 1b). To consolidate all of Bahia Blanca’s polyethylene activity under Dow’s control a three-stage plan was developed. The first stage involved taking control of PBB, the second stage involved acquiring Polisur’s two polyethylene plants, and the third stage involved building a new ethylene cracker. To determine a proper risk premium Dow had to consider possible country risks. Currency and government policy risk may have had an impact because of possible future crises and changing government policies relevant to foreign investments. Furthermore, because of the ending of the convertibility law Dow also had to consider a possible exchange-rate risk. Dow created a holding company, Dow Investment Argentina, to invest in the project, then they had to decide whether they will use general corporate funds or raise debt for the PBB bid.
2. Statement of problem
3.1 General analysis
Rational for Acquisition of PBB
Dow Chemical’s corporate strategy is to look for horizontal- and vertical integration, achieve technological leadership and gain international presence. Dow will benefit from a more integrated production process by lowering their cost of production. PBB will also create stable supplies of ethane for Dow allowing them to achieve operating rates near 100%. Cracking ethane in the region will result in lower operating risk for Dow meaning the supply/input risk for the production of Polyethylene. An increase in the production output of Dow will allow them to benefit from economies of scale. Overall Dow will gain technology leadership and operational excellence from adding PBB to their company and enhance them with a costleader position in the market