Dow Chemical Bid for Pbb Privatization
rP os t
9-204-021
REV: MARCH 31, 2006
MIHIR A. DESAI
Dow Chemical's Bid for the Privatization of PBB in
Argentina
op yo On November 10, 1995, Oscar Vignart, vice president of business development for Latin America for Dow Chemical Company (Dow), and Luis Marcer, CFO of Dow Química Argentina, considered the bidding price on Petroquímica Bahia Blanca S.A. (PBB), which was being privatized by the
Argentine government. PBB produced both ethylene and polyethylene. It was part of a petrochemical complex located in Bahia Blanca, 700 kilometers south of the Argentine capital, Buenos
Aires.1 Vignart believed that the acquisition of PBB offered Dow a once-in-a-lifetime opportunity to become the leading polyethylene player in Latin America.
tC
Vignart and Marcer had reviewed Dow headquarters’ projection of polyethylene consumption in
Latin America and had built cash flow projections for the project. They now had to incorporate
Argentina’s country risk into their model. While Vignart thought that Argentina’s current political and economic conditions favored the investment, he also recognized that there were many uncertainties about the project which he had to address to justify the investment to the parent company. With the offer price for the privatization due in 10 days, there was little time left to finalize the valuation and make a decision on the project.
Overview of the Ethylene and Polyethylene Industries in 1995
No
Ethylene, produced from oil or natural gas, was used to produce polyethylene, the world’s most widely used plastic. Polyethylene accounted for approximately three-quarters of ethylene demand.
Polyethylene plastic’s principal application was in packaging, from trash bags to milk jugs.
Ethylene
Ethylene plants, known as hydrocarbon “crackers,” separated either naphtha molecules (derived from crude oil) or ethane molecules (derived from natural gas).2 The ethylene derived from this process was used to produce polyethylene (Figure A).
1 In the case,
9-204-021
REV: MARCH 31, 2006
MIHIR A. DESAI
Dow Chemical's Bid for the Privatization of PBB in
Argentina
op yo On November 10, 1995, Oscar Vignart, vice president of business development for Latin America for Dow Chemical Company (Dow), and Luis Marcer, CFO of Dow Química Argentina, considered the bidding price on Petroquímica Bahia Blanca S.A. (PBB), which was being privatized by the
Argentine government. PBB produced both ethylene and polyethylene. It was part of a petrochemical complex located in Bahia Blanca, 700 kilometers south of the Argentine capital, Buenos
Aires.1 Vignart believed that the acquisition of PBB offered Dow a once-in-a-lifetime opportunity to become the leading polyethylene player in Latin America.
tC
Vignart and Marcer had reviewed Dow headquarters’ projection of polyethylene consumption in
Latin America and had built cash flow projections for the project. They now had to incorporate
Argentina’s country risk into their model. While Vignart thought that Argentina’s current political and economic conditions favored the investment, he also recognized that there were many uncertainties about the project which he had to address to justify the investment to the parent company. With the offer price for the privatization due in 10 days, there was little time left to finalize the valuation and make a decision on the project.
Overview of the Ethylene and Polyethylene Industries in 1995
No
Ethylene, produced from oil or natural gas, was used to produce polyethylene, the world’s most widely used plastic. Polyethylene accounted for approximately three-quarters of ethylene demand.
Polyethylene plastic’s principal application was in packaging, from trash bags to milk jugs.
Ethylene
Ethylene plants, known as hydrocarbon “crackers,” separated either naphtha molecules (derived from crude oil) or ethane molecules (derived from natural gas).2 The ethylene derived from this process was used to produce polyethylene (Figure A).
1 In the case,