preview

Essay On Dow Chemical Company

Better Essays

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 …show more content…

A plant for cracking ethane was estimated to cost $400 million to $500 million, a plant for cracking naphtha
$1 billion.3 Roughly half of the world’s ethylene plants, particularly those in gas-poor regions such as
Japan and Western Europe, utilized naphtha. Plants in gas-rich regions such as North America and the Middle East more frequently employed ethane from natural gas streams.4

No

tC

Large plant sizes and the need for economies of scale rendered the ethylene industry highly capital intensive. Consequently, capacity additions or reductions could significantly affect balance of supply and demand, influencing capacity utilization rates, prices, and profit margins. Ethylene profitability was tightly linked to its global operating rate. Among the investors in the ethylene business were oil companies, governments, pure chemical companies, conglomerates, private investors, and joint ventures. According to UBS Warburg plc, financial return objectives ranged from loss leader to zero return to beating the cost of capital. The loss leader or zero-return player was often a government operator that was, directly or indirectly, financing capital-intensive ethylene plants in order to stimulate downstream business. This was the case in Brazil, where the government sponsored a “tripartite” model, in which private Brazilian capital, multinationals holding the technology, and the government would each

Get Access