Harvard-Business--American-Chemical-Corporation

DownloadedbyXanEduUserID1400649on2/16/2017.NewYorkUniversity,GuodongChen,Spring20179-280-102REV.DECEMBER1,1995________________________________________________________________________________________________________________ProfessorJohnP.Goldsberrypreparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©1980PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.JOHNP.GOLDSBERRYAmericanChemicalCorporationInJune1979,AmericanChemicalCorporationannouncedatenderofferforanyandallofthesharesoftheUniversalPaperCorporation.AmericanwasoneofthelargestdiversifiedchemicalcompaniesintheUnitedStates(Exhibit1).Universalwasalargepaperandpulpcompany(Exhibit2).Universal’smanagementopposedthetakeoverand,amongotherthings,suedinfederalcourttohavethetenderofferblockedongroundsthatAmerican’sacquisitionofUniversalwouldviolatetheClaytonActoftheU.S.antitrustlaws.Bothfirmsengagedintheproductionofsodiumchlorate.UniversalallegedthatitsacquisitionbyAmericanwouldsubstantiallyreducecompetitioninthesodiumchloratebusiness,particularlyintheSoutheasternU.S.marketwherethetwofirmswerecompetitors.TheU.S.governmentjoinedUniversalinseekingapreliminaryinjunctiontostopAmerican’stenderoffer.Thoughitdeniedtheallegations,AmericanpreventedapreliminaryinjunctionbyagreeingtodivestitssodiumchlorateplantlocatednearCollinsville,Alabama,intheeventitacquiredUniversal.Americansubsequentlywassuccessfulinacquiringover91%ofUniversal’sshares.InOctober1979,AmericanbeganlookingforabuyerfortheCollinsvilleplant.Anumberofpotentialbuyerswereapproached,includingtheDixonCorporation,aspecialtychemicalscompany.Afterlengthynegotiations,DixonagreedtopurchasethenetassetsoftheCollinsvilleplantfromAmericanfor$12million,subjecttoapprovalbyitsboardofdirectors.TheMarketforSodiumChlorateSodiumchlorate(NaClO3)wasachemicalproducedbytheelectrolyticdecompositionofsalt(NaCl)accordingtothechemicalformula:NaCl+3H20+energy→NaClO3+3H2Sodiumchloratewassoldeitherasawhitecrystallinesolidorina25%watersolution.Approximately85%ofthesodiumchlorateproducedintheUnitedStateswassoldtothepaperandpulpindustries,whereitwasusedinthebleachingofpulp.Sodiumchloratewasreactedwithsalt(NaCl)andsulfuricacid(H2S04)toproduceableachingagent,chloridedioxide(ClO2),accordingtotheformula:NaCl03+NaCl+H2SO4→½Cl2+ClO2+Na2SO4+H2ODownloadedbyXanEduUserID1400649on2/16/2017.NewYorkUniversity,GuodongChen,Spring2017280-102AmericanChemicalCorporation2Chloridedioxidewastheactiveingredientactuallyusedbypaperandpulpproducerstobleachpulp.Theremaining15%ofthesodiumchlorateproducedintheUnitedStateswasusedinsoilsterilants,inoxidizersforuseinuraniumminingandinproducingvariouschemicals,includingsodiumchlorite,potassiumchlorateandammoniumperchlorate.Salesofsodiumchloratehadgrownrapidlyduringthe1970sfrom220,000tonsin1970toanexpected435,000tonsin1979(Exhibit3).Salesincreasedbyapproximately8.6%peryearduringtheperiod1970-1974,butthendeclined12%in1975whenpulpproductiondecreasedduringtherecession.Demandimprovedduringthesubsequentrecovery,andsalesgrewbymorethan10%peryearbetween1975and1979.Demandforsodiumchloratefrompulpproducerswasexpectedtocontinueincreasingat8%to10%peryear.Whilepulpproductionwasprojectedtoincreaseataslowerannualrateofabout3%to4%,pulpproducers’useofsodiumchloratewasexpectedtogrowmorerapidlysinceuseofsodiumchlorate(andtheactiveingredientchloridedioxide)helpedsolvetheirplanteffluentproblems.Otherusesofsodiumchloratealsowereexpectedtogrowatabout8%to10%peryear.Capacityadditionshadnotkeptpacewithsalesgrowthduringthe1970s(Exhibit3).Thoughsaleshadincreasedbyover95%between1970and1979,capacityhadincreasedbylessthan70%duringthisperiod.Theresultingtightmarketsin1973-1974and1977-1978causedasubstantialimprovementinprofitmarginsbetween1970and1979,eventhoughproductioncostsalsoincreasedgreatlyduringthisperiod.Thesetightmarketsandcostincreaseshadcausedpricesforsodiumchloratetoincreaserapidlybeginningin1973(Exhibit3).Inlate1979,therewereadozendomesticproducersofsodiumchlorate(Exhibits4and5).Themarketwasdominatedbylarge,diversifiedchemicalcompanies(Hooker,Pennwalt,AmericanandKerr-McGee).However,anumberofpaperandpulpcompanies(GeorgiaPacificandUniversal)hadintegratedbackwardintotheproductionofsodiumchlorate.Inaddition,twofirms(BrunswickandSouthern)specializedinproducingsodiumchlorate.Thethreelargestproducersaccountedforover55%ofdomesticcapacity.ThemajorityofsodiumchlorateplantswerelocatedintheSoutheasternUnitedStates(Exhibit4)whereapproximatelytwo-thirdsoftheproductwasconsumedduetothehighregionalconcentrationofpulpandpapermills.Freightcostsrepresentedasignificantport