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

Abstract

Mergers and acquisitions (M&As) have been actively carried out in the petrochemical industry. However, the synergy created by the merger of petrochemical companies has seen relatively little study, despite being the primary goal of a merger. This study deals with the horizontal merger of petrochemical companies located within a single complex. Synergies considered in this work stem from integration of the process network and the utility plant, reduction of fixed costs, and contracts in purchasing and selling. A novel mathematical model that represents the operation of a process network and a utility plant and the decisions for purchasing and selling contracts is formulated. Four contracts for purchasing and selling are considered. The proposed model is applied to three Korean companies at a naphtha cracking center (NCC) located in the same industrial complex. The results show that synergy effects from integration of the process network and the utility system, reduction of fixed costs, and increased market share together increase profit by 50%.