Dupont Case Analysis
E. I. du Pont’s strategy will have to respond to future challenges in the TiO₂ market
TiO₂ market: Oligopolistic, highly competitive and undergoing major technology changes, substantial excess demand. Future potential: Market growth of 3% a year with an expected market size of 1,072,000 tons in year 1985, potential of 65% market leadership
Challenge for Du Pont: What strategy will maximize the value of our TiO₂ business?
Alternatives for E.I. Du Pont
Do nothing
Maintain
Growth
Main implications
- Aggressive increase capacity to 685 k tons (6% p.a.) by 1985. Yearly CAPEX of US$
~30 m
- Market share increase from 35% (1973) to 64% (1985)
- Market prices increase to US$ 1,430 per ton (8% p.a.)
- Restricted technology licensing to competition
- Moderate increase capacity to 482 k tons (3% p.a.) by 1985. Yearly CAPEX of US$
~13 m
- Market share increase from 35% (1973) to 45% (1985)
- Market prices increase to US$ 1,370 per ton (7% p.a.)
- No change of capacity. No capital investment, other than capital expenditures that offset the depreciation amount.
- Market share decrease from 35% (1973) to 30% (1985)
- Market prices increase to US$ 1,370 per ton (7% p.a.)
Strategy
alternatives
NOTE: WACC of 15%
1 Incremental cash flows over the “Do-Nothing” strategy
2 US$ of NPV per US$ of Working Capital and Capital Expenditures, net of Tax Credits.
The investment in working capital and capital expenditures required under Growth is US$532m; under Maintenance, it is $266m; under “Do-Nothing,” it is $69m.
• NPV is highest under Growth.
• IRRs from Maintain and Growth are high, supporting the case for either, but not strictly conclusive.
• Profitability Index represents a picture of NPV generation relative to the investment amount. As the amount of investment under Growth is $532m, almost twice that under Maintain,
Growth scenario has the lowest profitability index.
• Conclusion: As there are no strict capital constraints on this
TiO₂ market: Oligopolistic, highly competitive and undergoing major technology changes, substantial excess demand. Future potential: Market growth of 3% a year with an expected market size of 1,072,000 tons in year 1985, potential of 65% market leadership
Challenge for Du Pont: What strategy will maximize the value of our TiO₂ business?
Alternatives for E.I. Du Pont
Do nothing
Maintain
Growth
Main implications
- Aggressive increase capacity to 685 k tons (6% p.a.) by 1985. Yearly CAPEX of US$
~30 m
- Market share increase from 35% (1973) to 64% (1985)
- Market prices increase to US$ 1,430 per ton (8% p.a.)
- Restricted technology licensing to competition
- Moderate increase capacity to 482 k tons (3% p.a.) by 1985. Yearly CAPEX of US$
~13 m
- Market share increase from 35% (1973) to 45% (1985)
- Market prices increase to US$ 1,370 per ton (7% p.a.)
- No change of capacity. No capital investment, other than capital expenditures that offset the depreciation amount.
- Market share decrease from 35% (1973) to 30% (1985)
- Market prices increase to US$ 1,370 per ton (7% p.a.)
Strategy
alternatives
NOTE: WACC of 15%
1 Incremental cash flows over the “Do-Nothing” strategy
2 US$ of NPV per US$ of Working Capital and Capital Expenditures, net of Tax Credits.
The investment in working capital and capital expenditures required under Growth is US$532m; under Maintenance, it is $266m; under “Do-Nothing,” it is $69m.
• NPV is highest under Growth.
• IRRs from Maintain and Growth are high, supporting the case for either, but not strictly conclusive.
• Profitability Index represents a picture of NPV generation relative to the investment amount. As the amount of investment under Growth is $532m, almost twice that under Maintain,
Growth scenario has the lowest profitability index.
• Conclusion: As there are no strict capital constraints on this