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7/28/2019 Pkgs (Final)
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Packages and Mitsubishi International JointVenture Negotiations
Presented by
Saad Ullah Jaral
Harris AftabM.Haroon Rauf
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Negotiations betweenpackages and Mitsubishi
Joint venture to produceBOPP film
Improve the shelf life ofproducts
In 1992, Syed Babar Aliproposal
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In1992
Demand-- 5,035 tonnes in
Pakistan
80% ---imported
The demand ---increasingat the rate of 12% to 15%
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Until 1993 that deal was not done
Differences during negotiation
Joint venture agreement
Clause ---- responsible for reimbursing
Mitsubishis investment
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Disgraceful for packages management
Disagreement continued between the two
sides
Interested in another technology introducedby Bruckner
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MajorIssues
Price
Capacity of
Plant
Reimbur-
sement
EquityParticipa-tion
Control of
Manag
e-ment
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decide if it was feasible for
Packages to go ahead with thejoint venture with Mitsubishi and
what counter offer to make to
Mitsubishi Heavy Industries
Core Problem
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In April, 1993, Mr. Javed
Aslam, the DeputyGeneral Manager of
Packages, received a
quotation of US $6.4million for a 6000-tonplant from Mitsubishi
Heavy Industries (MHI)
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Bruckner costs $4.9m
Capacity 4000 tones
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ADVANTAGESMitsubishi largest corporation in
Japan
Provide technological and financialassistance
High local demand (15-15%)
DISADVANTAGESChange in tariff and import duty
policies
Differing negotiating styles
Price of the equipment
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ADVANTAGESInferior quality of the locally produced BOPP
Presence of quality conscious market
Opportunity to diversify joint venture portfolio
Credible past performance
Five year sales tax exemption and eight year income tax holiday
Ready to train and transfer technical know-how
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Mitsubishi 6000UNITS 1995 1996 1997 1998 1999Revenues
186.19 249.25 355.20 480.00 621.84
COGS (66) (62) (59) (58) (57)Gross Profit 120.19 187.25 296.2 422 564ExpensesSelling &Admin 5 5 5 5 5Other Charges - 0.07 1.10 1.64 1.95Depreciation 1.28 1.28 1.28 1.28 1.28Operating
Income113.91 180.09 288.82 414.08 555.77
Interest (20%) 2 2 2 2 2EBT 111.91 178.09 286.82 412.08 553.77Tax 55.955 89.045 143.41 206.04 276.8Net Income 55.955 89.045 143.41 206.04 276.8
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Bruckner 4000
UNITS 1995 1996 1997 1998 1999
Revenues 186.19 249.25 355.20 480.00 621.84
COGS (65) (61) (58) (58) (55)Gross Profit 121.19 188.25 297.2 422 566.84
Expenses
Selling &
Admin
5 5 5 5 5
Other
Charges
0.04 1.07 1.74 1.83 1.46
Depreciation 1.34 1.34 1.34 1.34 1.34
Operating
Income
14.81 180.84 289.12 413.83 559.04
Interest
(20%)
2 2 2 2 2
EBT 112.81 178.84 287.12 411.83 557.04
Tax 56.4 89.42 143.56 205.9 278.52
Net Income 56.4 89.42 143.56 205.9 278.52
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Solution
Mitsibushi Bruckner
NPV Rs. 131.26m
PBP Rs. 2 years 9months
NPV Rs. 186.38m
PBP Rs. 2 years 1month
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Solution
Buy from Bruckner (Plant for Rs. 4,000tonnes)