Bidding Pbb

Dow should acquire PBB because the acquisition of PBB offers Dow once in the life time the opportunity to become the leading polyethylene player in Latin America.

There are several reasons for Dow to become leading polyethylene player in Latin America, especially in Argentina.

Firstly, rapid society transformation is taking place in Argentina. Economy is developing in a fast pace and political environment is becoming more and more stable. During the 1980s, Argentina experienced long periods of hyperinflation, stagflation, and huge fiscal deficit. Economy of Argentina started to recover after Carlos Menem took power along with his Convertibility Plan. Living standard in Argentina is anticipated to continue to improve; food, packaging industries and supermarkets sectors have experienced dramatic development since 1991, increasing demand for polyethylene.

Secondly, supply of primary materials such as petroleum and gas is abundant in Bahia Blanca, and energy price in the area is low. Supply of primary materials and electricity are crucial to success of polyethylene production.

Thirdly, competition of polyethylene industry in Argentina is moderate; there are only two major players in the industry, and products of the two companies are different, PBB specializes in ethylene and HDPE production, PBB’s main competitor, Polisur, specializes in LDPE and HDPE production. The probability of price war is low in Argentina, and thus, revenue is relatively stable and predictable.

Acquiring PBB offers Dow the opportunity to enter Argentina market, and this is the first step for Dow to take over control of Bahia Blanca’s polyethylene activities.

The main risks beyond the general industry risks of this project for Dow are country risks. There are three main risks associated with country risks, political risks, economic risks and financial risks.

Political risks of Argentina seemed to be small. The political system in Argentina was relatively stable, political...