Synergy in Mergers of Petrochemical Companies within a Complex Considering Purchasing and Selling Advantage with Process Integration

Abstract

Mergers and Acquisitions, M&A, have been active in the petrochemical industry. However, the synergy created by the merger of petrochemical companies has rarely been studied, although it is the primary goal of a merger. This study deals with the merger of petrochemical companies located within one complex. Synergy considerations resulting from process network and boiler integration with fixed cost reduction and market power increase in upstream market (i.e., resource purchasing advantage) and downstream market (i.e., product selling advantage) are included. A novel mathematical model is formulated that represents the operation of a process network aiming at increasing the profitability of merged companies. The resource purchasing advantage and product selling advantage options are considered by means of various scenarios. The proposed model is applied to Korean Naphtha Cracking Center, NCC, companies in one complex. The results, presented in three case studies, demonstrate that a merger creates synergy primarily from the purchasing advantage and selling advantage options, while the process network and boiler integration which simply collects various processes can create a little synergy.

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.…”

Evaluation of Synergy Effect in the Horizontal Merger of Companies in a Petrochemical Complex

“…The debate has focused on how much M&As will impact the petrochemical industry and the national economy. To assist stakeholders, in an earlier study, the present authors proposed an optimization model to quantify synergy in the merger of petrochemical companies in an industrial complex, considering purchasing and selling advantages . The results of the previous research indicate that strengthening market power can significantly increase profit.…”

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

“…The work of Yoon et al 1 dealt with M&A synergy quantification. This previous work is aimed at horizontal M&A in which the acquirer and target companies are determined.…”