Privatization of Rhone-Poulenc, 1993 Harvard Case Solution & Analysis

Privatization of Rhone-Poulenc, 1993

Question 1

What are the goals of and constraints faced by the French State? Rhone-Poulenc?Its workers?Of Bankers Trust? The French bank that will finance the BT share purchase option?

First of all, the goals of the French State are cut and reduce the budgetary deficit, reducing the involvement of the French state into the French economy, providing the routes to the companies that are owned by the state for raising the required capital specially the foreign capital and adding to the liquidity and the diversity of the French State. The constraints that are faced by the French State are the political success of privatization and the distribution of the stock needs to be broad in which the potential buyers need to include both the institutions and private investors such as the long term stock holders.

The goals of Rhone-Poulenc are to make sure that the offering is 100% subscribed by the employees. No unsold shares and any other financial costs should be created by the offering and minimal incentives need to be offered to the employees. The constraints faced by Rhone-Poulenc are the limitations laid down by Tresor and Rhone-Poulenc is also constrained in a manner to persuade the employees to purchase the shares for privatization.

The goals of the workers are to achieve a condition, which is the most favorable to them and the constraints faced by them are that they are risk averse, they do not have enough cash and there is a risk of losing cash and job in the future.

Lastly, the goals of the banker’s trust is to create successful stories and unique deals to expand the business in the future, in order to overcome the loss of the most innovative banks for risk management and derivatives expertise. The constraints faced by the banker’s trust are that no losses should be suffered by French bank and Rhone-Poulenc when they are going to provide their employees with guarantees.

Question 2

How would you rate the success of the January 1993 offering? What should Rhone-Poulenc do differently, if anything?

This was not the first time that Prot and Tirouflet had been playing a key role in the privatization of the company in July 1993. The partial privatization had also been preceded by the stated in the January of 1993 and the shares offered to the private investors were $25.8 million and the total shares offered to the employees were $2.58 million. However, less than 20% of the total workers of the company had participated in the offering. Therefore, as a result the offering in January was highly disappointing and Rhone-Poulenc officials had sought explanations and three reasons had been identified for this failure.

The reasons included that the employees were just given one option to participate in that offering, the deal did not seemed to be much attractive to the workers and the attempts were inadequate in explaining the program of the company. As a result of this, the ensuing year for the company was a difficult one and the company was faced by economic drain. The company should have made the offer more attractive and explained the program to the private investors and the workers of the company.......................

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