Dow's Chemical

1176 Words5 Pages
Executive Summary To become the number-one player in the Latin American polyethylene industry, Dow’ chemical decided to bid for PBB in 1995, PBB is a producer of both Ethylene and polyethylene which was controlled by Argentina government. For acquiring the PBB and Polisur, Dow valuate the PBB and Polisur in the privatization and also made the plan for their future development as whole. During the valuation, we defined the risk and benefit. The risk refers to political risk, volatility of foreign market and currency risk, etc. The benefit will include explored an new market as well as diversify some risk. By reducing the risk, Dow could either finance from local bank or from large source of international source. We built the assumptions based on historical data and events. For the calculation of the discount rate, we use two models: ICAPM and CAPM. Finally we chose ICAPM because it captures substantial foreign risks. We will recommend DOW to bid the minimum price of $150m. Introduction Dow held a leading market position in the chemical industry. Chemicals, Plastics, and agricultures products are three major business generated annual revenues of $20.2 for Dow’s. Even though Dow has plants in over 30 different countries about 75% of its sales are from US and Europe. Because economics of scale are very important in this business Dow wants to expand to other markets. In the 80’s, Argentina experienced a period of hyperinflation, stagflation and huge fiscal deficit. In the 90”s the government managed to bring inflation down to an international standard by installing a fixed exchange rate of the peso to USD. By reducing trade barriers (e.g. Mercosur), deregulation of industries and capital markets it created economical growth. Through privatizing of public business like PBB they tried to reduce the debt. All these measures lead to growth of Argentina’s economy and

More about Dow's Chemical

Open Document