Rev. Mar 9, 2011
VICTORIA CHEMICALS PLC (A): THE MERSEYSIDE PROJECT
Late one afternoon in January 2008, Frank Greystock told Lucy Morris, “No one seems satisfied with the analysis so far, but the suggested changes could kill the project. If solid projects like this can’t swim past the corporate piranhas, the company will never modernize.” Morris was plant manager of Victoria Chemicals’ Merseyside Works in Liverpool, England. Her controller, Frank Greystock, was discussing a capital project that Morris wanted to propose to senior management. The project consisted of a (British pounds) GBP12 million expenditure to renovate and rationalize the polypropylene production line at the Merseyside plant in order to make up for deferred maintenance and to exploit opportunities to achieve increased production efficiency.
Victoria Chemicals was under pressure from investors to improve its financial performance because of the accumulation of the firm’s common shares by a well-known corporate raider, Sir David Benjamin. Earnings had fallen to 180 pence per share at the end of 2007 from around 250 pence per share at the end of 2006. Morris thus believed that the time was ripe to obtain funding from corporate headquarters for a modernization program for the Merseyside Works—at least she had believed this until Greystock presented her with several questions that had only recently surfaced.
Victoria Chemicals and Polypropylene
Victoria Chemicals, a major competitor in the worldwide chemicals industry, was a leading producer of polypropylene, a polymer used in an extremely wide variety of products (ranging from medical products to packaging film, carpet fibers, and automobile components) and known for its strength and malleability. Polypropylene was essentially priced as a commodity.
The production of polypropylene pellets at Merseyside Works began with propylene, a refined gas received in tank cars. Propylene was purchased from four refineries in England that This case was prepared by Robert F. Bruner as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Victoria Chemicals is a fictional company reflecting the issues facing actual firms. The author wishes to acknowledge the helpful comments of Dr. Frank H. McTigue, the literary color of Anthony Trollope, and the financial support of the Citicorp Global Scholars Program. Copyright 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to email@example.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
This document is authorized for use only in FINS3625 - Applied Corporate Finance s1/2014 by Jared Stanﬁeld at University of New South Wales from February 2014 to August 2014.
produced it in the course of refining crude oil into gasoline. In the first stage of the production process, polymerization, the propylene gas was combined with a diluent (or solvent) in a large pressure vessel. In a catalytic reaction, the polypropylene precipitated to the bottom of the tank and was then concentrated in a centrifuge.
The second stage of the production process compounded the basic polypropylene with stabilizers, modifiers, fillers, and pigments to achieve the desired attributes for a particular customer. The finished plastic was extruded into pellets for shipment to the customer. The Merseyside Works production process was old, semicontinuous at best, and, therefore, higher in labor content than its competitors’ newer plants. The Merseyside Works plant was constructed in 1967.
Victoria Chemicals produced polypropylene at Merseyside Works and in Rotterdam, Holland. The two plants were of...
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