Packages and Mitsubishi International Joint Venture Negotiations

Presented by Saad Ullah Jaral Harris Aftab M.Haroon Rauf

Negotiations between packages and Mitsubishi Joint venture to produce BOPP film Improve the shelf life of products
In 1992, Syed Babar Ali proposal

In1992 Demand-- 5,035 tonnes in Pakistan 80% ---imported

The demand ---increasing at the rate of 12% to 15%

Until 1993 that deal was not done

Differences during negotiation

Joint venture agreement

Clause ---- responsible for reimbursing Mitsubishis investment

Disgraceful for packages management

Disagreement continued between the two sides Interested in another technology introduced by Bruckner

Price Contro l of Manag ement

Major Issues

Capaci ty of Plant

Equity Partici pa-tion

Reimb ursemen t

Core Problem

decide if it was feasible for Packages to go ahead with the joint venture with Mitsubishi and what counter offer to make to Mitsubishi Heavy Industries

In April, 1993, Mr. Javed Aslam, the Deputy General Manager of Packages, received a quotation of US $6.4 million for a 6000-ton plant from Mitsubishi Heavy Industries (MHI)

Bruckner costs $4.9m

Capacity 4000 tones

ADVANTAGES
Mitsubishi largest corporation in Japan

Provide technological and financial assistance

High local demand (15-15%)

DISADVANTAGES
Change in tariff and import duty policies Differing negotiating styles Price of the equipment

ADVANTAGES
Inferior 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

Mitsubishi 6000
UNITS
Revenues COGS Gross Profit Expenses Selling & 5 Admin Other Charges Depreciation 1.28 Operating 113.91 Income Interest (20%) 2 EBT Tax Net Income 111.91 55.955 55.955 5 0.07 1.28 180.09 2 178.09 89.045 89.045 5 1.10 1.28 288.82 2 286.82 143.41 143.41 5 1.64 1.28 414.08 2 412.08 206.04 206.04 5 1.95 1.28 555.77 2 553.77 276.8 276.8 1995 186.19 (66) 120.19 1996 249.25 (62) 187.25 1997 355.20 (59) 296.2 1998 480.00 (58) 422 1999 621.84 (57) 564

Bruckner 4000
UNITS
Revenues COGS Gross Profit Expenses Selling & Admin Other Charges Depreciation Operating Income Interest (20%) EBT Tax Net Income
1995 1996 1997 1998 1999

186.19 (65) 121.19 5 0.04 1.34 14.81

249.25 (61) 188.25 5 1.07 1.34 180.84

355.20 (58) 297.2 5 1.74 1.34 289.12

480.00 (58) 422 5 1.83 1.34 413.83

621.84 (55) 566.84 5 1.46 1.34 559.04

2
112.81 56.4 56.4

2
178.84 89.42 89.42

2
287.12 143.56 143.56

2
411.83 205.9 205.9

2
557.04 278.52 278.52

Mitsibushi

Bruckner

NPV Rs. 131.26m PBP Rs. 2 years 9 months

NPV Rs. 186.38m PBP Rs. 2 years 1 month

Solution

Buy from Bruckner (Plant for Rs. 4,000 tonnes)

Solution