Case Interview Questions #00366: The client BASF SE (FWB: BAS) is a large global chemical company headquartered in Ludwigshafen, Germany. BASF has retained McKinsey to evaluate Monheim, Germany-based Cognis, another large player in the chemicals industry, as a possible merger/acquisition candidate. Both BASF and Cognis are bulk commodity chemical producers. Our consulting team’s main job is to analyze the future prospects of the target company’s main product line: a bulk chemical that is used in the production of plastics.
Our consulting team has to analyze Cognis, the target company’s future prospects in its major product line. As the team leader of this case assignment, what information do you need to know and how would you structure the analysis to determine if the proposed merger/acquisition is a good idea or not?
At this stage in the project, our consulting team is not in a position to make a final recommendation, but is more interested in gathering the appropriate data. This is different from most consulting case interviews in which the purpose is to come out with a recommendation for the client.
Additional Information: (to be revealed during the course of the case interview)
- Production of this chemical has been declining slowly for several years.
- Prices have declined rapidly.
- There are 8 major producers of this chemical with market share divided the following way: the largest producer has a 30% share, the second largest has a 20% share, and our target company has a 15% share. The rest is divided among the remaining 5 competitors.
- Profitability in the industry is relatively low. The two largest competitors earn small returns, our target company is breaking even, and the remaining competitors are operating at a small loss.
- The largest competitor has just announced plans to substantially increase capacity.
This is a merger/acquisition and industry analysis case in which Porter’s Five Forces framework might be useful, but it is