Dixon

Please see the attached financial analysis for FCFcap for details. We calculated EBIAT using an implied 48.7% tax rate from Dixon’s financials and added back in depreciation, Capx, and net working capital. We did this for the non-laminate and laminate cases. We originally used the given 5 year pro forma and tried to calculate a terminal value. We decided instead to carry the pro forma out another 5 years to the end of the plant’s life.

4. How important is the laminate technology to the economic success to the economic success of the transaction?

Our calculations show that the laminate technology is critical in making this a viable deal. The cost savings outweigh the capital expenditure and turn the deal into a positive present value. We are concerned, however, with the timing and feasibility of the laminate technology. At the time of the acquisition (Oct 1979), American Chemical is only 40% complete with the development project, 7 months away from having a pilot plant (March 1980), and a mere 14 months from projected installation in Collinsville (Dec 1980). This is an extremely aggressive development schedule. Dixon would need to write detailed language into the contract protecting itself against development delays, technical issues, or potential pullback from American Chemical in giving the technology to Dixon.

5. What are the strategic issues which arise in Dixon’s acquisition of Collinsville?

Market / Product / Business

Dixon sold sulfuric acid and sulfur dioxide into the paper industry. The addition of sodium chlorate from the Collinsville plant would be complimentary in the following ways:

The main detriment to the acquisition would be the possible cannibalization of Dixon’s sulfur dioxide business, which was a competitor to sodium dioxide in the paper bleaching process.

From a business strategy standpoint, the acquisition would appear to be good for Dixon if it gets the laminate technology. The...