Harvard Case - Hexion/Apollo's Courtship of Huntsman Corporation (A)
"Hexion/Apollo's Courtship of Huntsman Corporation (A)" Harvard business case study is written by Lena G. Goldberg, Danielle V. Holland. It deals with the challenges in the field of Organizational Behavior. The case study is 14 page(s) long and it was first published on : Sep 10, 2015
At Fern Fort University, we recommend that Hexion Inc. proceed with the acquisition of Huntsman Corporation, but with a strategic approach that addresses the potential challenges and maximizes the potential synergies. This recommendation is based on a thorough analysis of the case, considering factors such as market dynamics, financial viability, and the potential impact on both companies' organizational cultures.
2. Background
This case study focuses on Hexion Inc.'s (Hexion) pursuit of Huntsman Corporation (Huntsman) through a hostile takeover bid. Hexion, a leading global manufacturer of adhesives, resins, and other specialty chemicals, saw Huntsman as a strategic acquisition that would bolster its market position and profitability. Huntsman, a global manufacturer of chemicals, polymers, and other products, initially resisted the takeover bid, leading to a complex and protracted negotiation process.
The main protagonists of the case are:
- Craig Morrison: CEO of Hexion, driving the acquisition strategy.
- Peter Huntsman: CEO of Huntsman, resisting the takeover bid.
- The Huntsman Family: Holding a significant stake in the company, with varying opinions on the acquisition.
- The Boards of Directors: Navigating the complex legal and financial aspects of the deal.
3. Analysis of the Case Study
Strategic Framework: This case can be analyzed through the lens of Porter's Five Forces framework, focusing on the competitive landscape and the potential impact of the acquisition on industry dynamics.
Key Findings:
- Market Dynamics: The chemical industry is characterized by intense competition, consolidation, and cyclical demand. Hexion's acquisition of Huntsman would create a larger, more diversified entity with greater market power.
- Financial Viability: The acquisition would create a company with a stronger financial position, potentially leading to increased profitability and shareholder value.
- Organizational Culture: The two companies have distinct organizational cultures, with different leadership styles, decision-making processes, and employee engagement levels. This difference could pose a challenge to the integration process.
- Leadership: The leadership styles of Craig Morrison and Peter Huntsman are contrasting, with Morrison being more aggressive and Huntsman more cautious. This difference could influence the negotiation process and the post-merger integration.
- Power and Politics: The Huntsman family's significant ownership stake and Peter Huntsman's resistance to the acquisition create a complex power dynamic. This dynamic could affect the success of the acquisition.
4. Recommendations
Develop a Comprehensive Integration Plan: Hexion should develop a detailed integration plan that addresses the organizational culture differences, leadership styles, and potential conflicts. This plan should include strategies for:
- Communication: Establishing clear communication channels to address concerns and ensure transparency throughout the process.
- Leadership: Identifying key leadership roles and fostering collaboration between Hexion and Huntsman executives.
- Talent Management: Retaining key talent from both companies and creating a unified workforce.
- Organizational Structure: Designing an effective organizational structure that leverages the strengths of both companies.
Address Cultural Differences: Hexion should proactively address the cultural differences between the two companies through:
- Cultural Assessment: Conducting a thorough assessment of the organizational cultures to understand the potential challenges and opportunities.
- Cross-Cultural Training: Providing training programs to promote understanding and collaboration between employees from both companies.
- Communication Strategies: Developing communication strategies that are sensitive to the cultural nuances of both companies.
Negotiate a Fair Deal: Hexion should negotiate a fair deal that considers the interests of both companies and their stakeholders. This involves:
- Valuation: Conducting a thorough valuation of Huntsman to ensure that the acquisition price is fair and reasonable.
- Financial Structure: Negotiating a financial structure that minimizes risk and maximizes value for both companies.
- Governance: Establishing a governance structure that reflects the interests of all stakeholders.
Focus on Synergies: Hexion should identify and leverage potential synergies between the two companies, such as:
- Cost Savings: Identifying opportunities for cost savings through economies of scale and process optimization.
- Revenue Growth: Exploring opportunities for revenue growth through cross-selling, market expansion, and product innovation.
- Operational Efficiency: Improving operational efficiency through shared resources, best practices, and technology integration.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: The acquisition aligns with Hexion's core competencies in the chemical industry and its growth strategy.
- External Customers and Internal Clients: The acquisition will create a larger company that can better serve its customers and provide greater opportunities for employees.
- Competitors: The acquisition will strengthen Hexion's competitive position in the chemical industry, allowing it to better compete with larger players.
- Attractiveness: The acquisition is financially attractive, with the potential for significant cost savings and revenue growth.
- Assumptions: The success of the acquisition depends on the successful integration of the two companies, which requires effective leadership, communication, and cultural sensitivity.
6. Conclusion
The acquisition of Huntsman Corporation presents both opportunities and challenges for Hexion Inc. By implementing a strategic approach that addresses the potential challenges and leverages the potential synergies, Hexion can create a stronger, more competitive company that can thrive in the global chemical industry.
7. Discussion
Alternatives:
- Abandon the acquisition: This option would avoid the challenges of integration but would also miss out on the potential benefits of the acquisition.
- Negotiate a joint venture: This option would allow Hexion to access Huntsman's resources and expertise without the complexities of a full acquisition. However, it would also limit Hexion's control and potential for synergy.
Risks:
- Integration challenges: The integration of two companies with different cultures and leadership styles can be complex and time-consuming.
- Regulatory scrutiny: The acquisition may face regulatory scrutiny, particularly in the areas of antitrust and environmental compliance.
- Financial risk: The acquisition could lead to significant financial risk if the integration process is not successful.
Key Assumptions:
- The integration process will be successful.
- The regulatory environment will be favorable.
- The financial markets will remain stable.
8. Next Steps
- Due diligence: Hexion should conduct a thorough due diligence process to assess the financial and operational health of Huntsman.
- Negotiations: Hexion should negotiate a definitive agreement with Huntsman that addresses all key terms and conditions.
- Integration planning: Hexion should develop a comprehensive integration plan that addresses the organizational culture, leadership, and talent management issues.
- Communication: Hexion should communicate the acquisition to employees, customers, and other stakeholders in a clear and timely manner.
- Implementation: Hexion should implement the integration plan in a phased and controlled manner.
This comprehensive approach will help Hexion navigate the complex process of acquiring Huntsman and ensure a successful integration that maximizes the value of the acquisition.
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Case Description
In July 2007, after several failed attempts to acquire Huntsman Corporation, Hexion/Apollo prevailed in a bidding war for the company and signed a definitive merger agreement. Apollo had down bid Huntsman during previous attempts to acquire the company, and Huntsman was suspicious. That suspicion, coupled with Huntsman's leverage that resulted from a competitive bid situation, prompted and enabled Huntsman to negotiate seller friendly terms. For example, there was no financing contingency, and although the merger agreement contained both a material adverse effect (MAE) clause and a reverse termination fee, the potential damages if Hexion/Apollo breached the agreement were uncapped. As the credit markets deteriorated in late 2007 and into 2008 and Huntsman turned in disappointing financial results, the Huntsman deal no longer looked attractive to Hexion/Apollo. Hexion/Apollo wanted out. Would the material adverse change (MAC) clause in the merger agreement permit Hexion/Apollo to simply walk away? Even if the MAE clause were not applicable, could Hexion/Apollo walk away by paying the reverse termination fee? Or were potential damages uncapped?
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