Union Carbide

Union Carbide – Group report #2 (questions)

1. Situation Analysis – in each of the three phases what were the critical issues for corporate financial management and what was the appropriate priority for each of these issues?

The case “The Union Carbide Deal” highlights three phases of the company’s financial situation. The first phase includes the Bhopal plan disaster and GAF takeover attempt. The second phase is the debt burden, and the final phase is the bank financing and equity.

In discussing the first phase, the Bhopal accident is really the catalyst for all the financial issues Union Carbide experienced from 1984 when it occurred until long past the end of the case and its eventual merger with Dow Chemical. As described in a New York Times article by Claudae Deutsch, “the bitter aftertastes continue to tarnish their corporate reputations….Those issues have had lingering impacts on their valuations on Wall Street,''  (Deutsch, p.2)

The impact of this devastating loss of human life was understandably massive on Union Carbide, threatening their financial stability and public perception, so much so that the Wall Street Journal was discussing the possibility of a declaration of bankruptcy within just a couple of days. The critical issues impacting corporate financial management for Union Carbide following the accident at Bhopal included quickly dropping stock price. “Before the disaster, UCC stock traded at between $50 and $58; in the months immediately following the accident it traded at $32-$40“ (Shrivastava p.2). Other critical issues were the downgraded bond credit rating, and a $470 million settlement with Indian Supreme Court that, while seen as paltry by many compared to the long term damages caused by the Bhopal leak, was still a blow to Union Carbide’s financial situation (Broughton).

The GAF takeover attempt was a serious and intentional threat to the company. The most critical issue as a result was the need to free up enough money to...