Selecting the Optimal Target Company Based on Synergy Calculation for the Vertical Merger in a Petrochemical Complex

Abstract

Petrochemical companies have focused on mergers and acquisitions (M&A) as a strategic option; however, there are very few quantitative tools which can critically evaluate M&A. The objectives of M&A are rapid growth by increasing the external scale of a company and strengthening its cost competitiveness. In particular, many petrochemical mergers occur within a complex. This study presents a novel mathematical model to select an optimal target company for the vertical merger in a petrochemical complex. The model is applied to the problem of one acquirer and five target companies within a complex. The results of the optimization studies are analyzed with regard to profit, synergy, variability, and cost efficiency of the merger. One target company is ultimately selected with a synergy of $264 million with $0.81 million of capital investment. The industrial case study demonstrates the viability of the given model for analyzing real M&A problems within a complex.

Comprehensive Decision Framework Combining Price Prediction and Production-Planning Models for Strategic Operation of a Petrochemical Industry

“…These various petrochemical products are important building blocks in a series of very complex and large-scale chemical networks; hence, the petrochemical industry is highly capital intensive. 15 These primary petrochemicals have an enormous economic significance according to the types of raw materials used. For example, most petrochemical industries in Middle Eastern countries have started to use their own resources to export intermediate or final products with increasing benefits for their economies.…”

“…A petrochemical plant handles various feedstocks such as representative naphtha, natural gas, and condensate to produce a wide range of primary petrochemicals, including ethylene, propylene, butadiene, benzene, toluene, and xylene. These various petrochemical products are important building blocks in a series of very complex and large-scale chemical networks; hence, the petrochemical industry is highly capital intensive . These primary petrochemicals have an enormous economic significance according to the types of raw materials used.…”

Quantitative tools for cultivating symbiosis in industrial parks; a literature review

“…Al-Qahtani and Elkamel [170] presented a methodology for designing and analyzing process integration networks and production capacity expansions in a multiple refinery complex by using different feedstock. In a merger and acquisition context Yoon et al [171] presented a model and study for vertical mergers within petrochemical concerns which took merging process and material streams into consideration.…”

Planning and Scheduling under Uncertainty: A Review Across Multiple Sectors

“…In the area of strategic planning, the explicit consideration of the various issues regarding the merger and acquisition problem and the potential synergy which can be achieved should be addressed. Yoon and co-workers − considered the merger and acquisition problem for petrochemical companies operating within the same complex under deterministic system conditions; however, the explicit consideration of parameter uncertainty, as well as the extension to other industries would be a worthwhile pursuit. Due to the considered time horizon, operational planning models are often formulated as aggregated scheduling models where the production capacity of the plant is approximated; however, this modeling approach leads to the planning model potentially overestimating the production capacity of the plant.…”