Analysis Of Dow Quimica Argentina Is Considering Making A Bid Be Privatized By The Government Of Argentina

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1. Background and Decision Issues Dow Química Argentina is considering making a bid to Petroquímica Bahia Blanca S.A. (PBB) because it was being privatized by the government of Argentina. PBB, which is located in Bahia Blance, is a major producer of both ethylene and polyethylene in Argentina. Dow sees this as a very big opportunity for the company to expand its market, utilize its resources and invest on a company that will eventually become the leading polyethylene player in Latin America. Dow’s vice president of business development for Latin America, Oscar Vignart, and Luis Marcer, CFO of Dow Química Argentina are building the company’s cash flow projections for this particular project. In so doing, they have to assess the country’s risk; current political and economic conditions of Argentina, exchange rate stabilities, freedom of capital repatriation and the uncertainties of the project so they can justify it to the parent company. They had developed a three-stage operational strategy for their future polyethylene expansion in Argentina. The first stage is the acquisition of the PBB; the second stage is the acquisition of Polisur’s two polyethylene plants and the last stage is building a new ethylene cracker and a polyethylene plant. In order to help them decide, the cash flows from each stage of this big project have been valued using the discounted cash flow approach. They used a discount rate that was adjusted to incorporate the country

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