Modeling and optimization for M&A decision making in the petrochemical industry

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. At this time, M&A are an important strategy that Korean petrochemical company can adopt to increase its competitiveness. It is necessary to estimate the potential synergy to perform the M&A successfully. This research addresses mergers of petrochemical companies in one complex. The focus is on estimating the synergy effects of the merger based on mathematical model. As a horizontal merger problem, the merger of three NCC companies is considered. The novel mathematical model is proposed to quantify various synergies in the horizontal merger of petrochemical companies within a complex. Contracts in purchasing and selling, process network integration, utility system integration and fixed cost reduction are considered to create synergy. The results show that the merger increases profit in both of prosperous and depressed market conditions. A novel mathematical model is proposed to select the optimal target company in the merging of petrochemical companies within a complex. The proposed model is applied to the vertical merger problem of one acquirer and five target companies. The synergy considered in this model is the integration of the process networks and utility systems. The results of the optimizations study are analyzed in facets of profit, synergy, variability and cost efficiency. Synergy from technology transfer in merger of petrochemical companies is also identified. The developed model is applied to a problem of two petrochemical companies having complementary technologies. The results represent that technology transfer contributes to create synergy significantly in the merger of petrochemical companies in both cases. In conclusion, this study integrates specific planning for operation of petrochemical companies with M...