DuPont Corporation: Sale of Performance Coatings Harvard Case Solution & Analysis

DuPont Corporation: Sale of Performance Coatings Case Solution

DuPont Performance Coating’s was founded in 1999; the products of DuPont Performance Coating are high-performance liquid, and power coating for motor vehicle. From 2007 to 2009, company sales decreased by 3%. So profit also decreased by 6%. The main reason of decrease in demand of product was the increase in price of raw materials as a result of economic conditions,  Ellen Kullman, the CEO of the company decided to increase the price of product due to this factor. When the price of a product increases, its demand decreases. That is the reason, which effects the earning of the company. Along with this, whenever there is sharp decline in the demand of the vehicles between 2000 and 2010 due to increase in the price of the product, most of customers were importing from foreign countries like India and China. Customers were importing from other countries, which highly affected local companies.

The competitive advantage of this business is technology and technical expertise. As there is an increase in the cost of the product, most of the customers are willing to pay for technologically advanced coasting. In 2011, company revenue grew by 12.5% due to increased sales because of improving economic conditions.

DPC focused more on R&D, which decreased the variable cost of production. DPC is facing a fierce competition in the coating market from the like of PPG Industries and Azko Nobel.

Strategic buyer is one who is interested to acquire the company, which creates synergy with their existing business. They are also known as synergistic buyers. The strategic buyers of acquire DPC are PPG, BASF, Akzo Nobel and Vlaspar Corporation. DPC is focuses on technological innovation, for which the company spends a lot on R&D.  If any company will acquire DPC, they will be able to enjoy the large amount of capital expenditure in R&D. The company is also very attractive for the debt financing if any company acquire the DPC, it will able to get large amount of debt financing at a minimum cost. When two companies merge, it affects credit rating of the company. Along with this, they are also looking for strong management teams, which run day to day operations smoothly, so that the company makes good returns. This company is a little too big bite for strategic buyers.
The potential risk for the strategic buyer is high leverage risk. As leverage is beneficial, it helps the company to save taxes. Therefore, the cost of debt is lower than cost of equity, as there is an increase in leverage of the company and relatively small increase in enterprise value of existing firm. High leverage create higher risks for the company.

  1. How attractive is DPC as an acquisition from a PE firm’s perspective? What are the potential risks to such a deal?

DPC is a stand-alone equity financed company. Therefore, it is a potential source of value for PE firm to use leverage. As PE Company will acquire the DPC, the total financing will increase based on amount that is paid for the target company. In addition, company will enjoy the benefit of saving taxes.......................

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