Dow Chemical Case
Question 1 Polyethylene is the world’s most widely used plastic. Polyethylene plastic’s principal application was in packaging, from trash bags to milk jugs. It was widely used in the manufacture of everything from trash bags, picnic cutlery and garbage pails, to plastic toys. Polyethylene also replaced glass, wood, and metal in certain applications. There were three types of polyethylene, Low-density polyethylene, High density polyethylene and Low linear density polyethylene. Polyethylene produced from ethylene. Ethylene is produced from oil or natural gas. Ethylene plants separated either naphtha molecules (derived from crude oil) or ethane molecules (derived from natural gas). The ethylene derived from this …show more content…
Argentina is an emerging market, which is facing a rapid transformation. Dow’s vice president anticipated continued improvement in standards of living, which will lead to increase demand for polyethylene in Argentina, as well as in Latin America. The expected growth in polyethylene demand made PBB a potentially attractive acquisition. 4. PBB right now is a government controlled complex which is going to privatize. For Dow, it is a perfect opportunity to build long term relationship with Argentina government. It will give Dow more opportunities in the market of Argentina and Latin America.
The followings are the mains risks of the project for Dow beyond the general industry risks discussed in Question 1: 1. Country risk.
Argentina is an emerging market. It is widely agreed that when we estimate the risk of emerging market by using the traditional model like CAMP, the result also unfavorable. Some reasons are the market is highly concentrated and integrated. And also the country risk cannot be diversified. So it brings the uncertainty to Dow’s valuation. 2. Political risk.
Political risk is part of country risk. It is identified as the potentially adverse impact a country’s environment has on a firm’s future cash flows. And it will affect Dow’s future expected returns and valuation measures. If there is some major political unrest in Argentina, the