Rev. June 8, 1999
This case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. It is a rewritten version of an earlier case entitled, “American Chemical Corporation,” HBS no. 280-102.
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Dixon Corporation: The Collinsville Plant
In June 1979, American Chemical Corporation announced a tender offer for any and all of the shares of the Universal Paper Corporation. American was one of the largest diversified chemical companies in the United States (Exhibit 1). Universal was a large paper and pulp company (Exhibit 2).
Universal’s management opposed the takeover and, among other things, sued in federal court to have the tender offer blocked on grounds that American’s acquisition of Universal would violate the Clayton Act of the U.S. antitrust laws. Both firms engaged in the production of sodium chlorate. Universal alleged that its acquisition by American would substantially reduce competition in the sodium chlorate business, particularly in the Southeastern U.S. market where the two firms were competitors. The U.S. government joined Universal in seeking a preliminary injunction to stop American’s tender offer. Though it denied the allegations, American prevented a preliminary injunction by agreeing to divest its sodium chlorate plant located near Collinsville, Alabama in the event it acquired Universal. American subsequently was successful in acquiring over 91% of Universal’s shares.
In October 1979, American began looking for a buyer for the Collinsville plant. A number of potential buyers were approached, including the Dixon Corporation, a specialty chemicals company. Dixon expressed considerable interest in the Collinsville plant and began serious negotiations with American Chemical in late 1979. Among the critical issues being negotiated was the purchase price. American Chemical was asking $12 million for the plant.
The Market for Sodium Chlorate
Sodium chlorate (NaClO3) was a chemical produced by the electrolytic decomposition of salt (NaCl) according to the chemical formula:
NaCl + 3H20 + energy → NaClO3 + 3H2
Sodium chlorate was sold either as a white crystalline solid or in a 25% water solution. Approximately 85% of the sodium chlorate produced in the United States was sold to the paper and pulp industries, where it was used in the bleaching of pulp. Sodium chlorate was reacted Purchased by Anders Juul Hansen (firstname.lastname@example.org) on July 04, 2012 298-165 Dixon Corporation: The Collinsville Plant
with salt (NaCl) and sulfuric acid (H2S04) to produce a bleaching agent, chloride dioxide (ClO2), according to the formula:
NaCl03 + NaCl + H2SO4 → ½Cl2 + ClO2 + Na2 SO4 + H2O
Chloride dioxide was the active ingredient actually used by paper and pulp producers to bleach pulp. The remaining 15% of the sodium chlorate produced in the United States was used in soil sterilants, in oxidizers for use in uranium mining and in producing various chemicals, including sodium chlorite, potassium chlorate and ammonium perchlorate.
Sales of sodium chlorate had grown rapidly during the 1970s from 220,000 tons in 1970 to an expected 435,000 tons in 1979 (Exhibit 3). Sales increased by approximately 8.6% per year during the period 1970-1974, but then declined 12% in 1975 when pulp production decreased during the recession. Demand improved during the subsequent recovery and sales grew by more than 10% per year between 1975 and 1979.