American Chemical Corporation

American Chemical Corporation

Name: vivian0396 Email: vivian0396@hotmail.com

Introduction:

This report provides information obtained through internal financial ratios analysis, regarding the profitability, liquidity and financial stability of Dixon Corporation for the years 1974-1979. This report will pay particular attention to free cash flow, NPV and IRR, and will highlight the benefits and risks by acquiring Collinsville Plant under external industry environment after 1979. A final conclusion will be drawn whether to acquire the Collinsville Plant or not and any alternatives to optimize Dixon’s decision.

Background:

1) The seller (American Chemical Corporation) acquired over 91% of Universal Paper Corporation’ shares, subject to divesting its sodium chlorate plant (Collinsville Plant) which was required by U.S. government from antitrust lawsuit, in 1979. 2) Our company (Dixon Corporation) was one of the several buyers. 3) Purchase price for net assets of the Collinsville plant was $12M and approval by board of directors was necessary.

Conclusion before NPV calculation:

Dixon should purchase Collinsville Plant to expand its business and the conclusion is based on the following analysis.

External environment analysis

- Demand for Sodium chlorate was increasing more than capacity additions in 1970s, and the situation was expected to continue in the next few years because if we assume the sales would increase at 8% per year and the capacity increase at 4% conservatively, the gap between sales and capacity would get bigger. Therefore, the price of Sodium Chlorate was expected to grow too which means the revenue of plant would keep growing in 1980s. (Attachment 1) →Collinsville Plant had great potential benefits for Dixon in 1980s.

Capacity of sodium chlorate

Sales of sodium chlorate

Price of sodium chlorate

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Increasingly severe competition

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