International Finance Case Study

(Group-1, Sec A) (1) • • • Names of group members: Abhishek Singh (WMP6003) Abhishek Kumar (WMP 7005) Ankesh Goyal (WMP7012)

(2)

The case selected by the group: Dow Chemical’s Bid for the privatization of PBB in Argentina

(3)

A brief synopsis of the case:

This case is about Dow Chemical Company bidding for the acquisition of Petroquimica Bahia Balanca (PBB) in Argentina. PBB produced both ethylene and Polyethylene and it is owned by Argentina government. Due to opening up of Argentina Economy the PBB had to bow directly compete with Brazilian Petro chemical producers but the Technology & Scale of PBB was not in line with International Standards. Hence, Argentina Government decided to privatize the PBB. On the other hand the DOW Chemical sees it as an opportunity to become the leading poly ethylene player in Latin America due to the favorable economic & political conditions in Argentina.

(4) • •

The questions around which the group would organize its analysis: Is the Copesul/Perez Company is the serious bidder of PBB? How to Finance the acquisition of PBB?

• What are the relevant Political & Economic factors that are important in determining the country risk? • What should be the Price to Bid for PBB?

• What would be the complete valuation of the entire project in order to justify this investment by Dow Chemicals in Argentina?

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7 million for PBB. a petrochemical complex that is being privatized by the Argentine government? To answer this question. allowing students to conduct a thorough valuation for an emerging markets project. The bid will meet all Government.54 billion combined). Calculating of present value of the project allows for increasing the cost of capital (15%) in comparison with similar projects in US (8-10%).A. students are also forced to consider the political dynamics involved. Dow should offer at least[1] $248.GROUP-1 P ROJECT REPORT – INTERNATIONAL FINANCE S ECTION -A Google: Abstract What price should Dow Chemical bid for PBB. the underlying currency exposure of the business.WMP 2011-14. The acquisition will allow expanding profitable business in Latin America and increasing attractiveness of The two current competitors of Dow for this acquisition (Perez Companc S. and how to value an investment opportunity that has several stages. . Case Analysis Dow Chemical Company is considering acquiring 51% stake in Petroquimica Bahia Blanca S. Price is government bigger than $150 requirements: million. (PBB) offered by the Government of Argentina. investors. Dow is required to estimate how much it would offer to meet the requirements of the Argentinean State. the Net assets company of the company among are sufficient. students are forced to consider the role of country risk.A. and the bidding process of a privatization. The company should also take into account the country risk of Argentina because it is an emerging market with problems with exchange rates stability and freedom of capital repatriation. The case provides detailed cash flows and discount rate information.Dow currently has enough cash to accomplish the acquisition and offer the guaranty in favor of the Page|2 of 3 . T ERM 7 SUBMITTED BY. and Copesul) don’t currently meet the requirements of the bid because of the insufficient amount of net worth ($1. overbid competitors but at the same time make the project profitable. Acquiring PBB is the first stage of Dow’s project of expanding petrochemical business in the country. the incentives of local managers. Given that it is a privatization.

T ERM 7 SUBMITTED BY. Dow is advised to offer $150 for PBB making the NPV of the project bigger by $98. Risk and Uncertainty. Multinational Firms and Management.7 million. Emerging Markets. Cash Flow.Valuation. If it is clear that there won’t be any other bidders except for Dow and the two mentioned companies that don’t have enough time to come through all legal procedures to create new company and attract a partner with big net worth. Credit Derivatives and Swaps. Business and Government Relations. Salient Concepts Employed for Analysis Bids and Bidding.GROUP-1 P ROJECT REPORT – INTERNATIONAL FINANCE S ECTION -A It’s only 10 days left to offer price. Privatization. Argentina Page|3 of 3 .WMP 2011-14.Energy Industry.

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