Baker & O'Brien, Inc.

Case Studies

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The Value of Outsourcing a Specialty Chemical

Arbitration, Western Europe

January 1, 2016

A company bought a chemicals business that produced a variety of related specialty chemical products.  After the buyer closed on the business, it learned that the seller had not disclosed that it produced a chemical that contained certain ozone-depleting substances that could not be lawfully marketed.  The buyer determined that it would cost tens of millions of dollars to remove the ozone depleting substances and make the product marketable.  The buyer concluded that it had paid more for the business than it was actually worth.

The seller argued that the buyer actually paid less for the business than it was worth, because it could have stopped producing the contaminated product and outsourced the supply of a purified alternative.  The seller claimed that producing the specialty chemical was not profitable and that closure of the plant would save millions of dollars of operating costs each year.  Therefore, the seller concluded that it sold the business for less than it was worth had the plant been shut down prior to sale.

Baker & O’Brien was engaged to provide expert testimony in the areas of technology assessment, improvements necessary to meet environmental regulations, the capital costs for such improvements, and the resultant economic impacts.  Our consultants gathered information during visits to the manufacturing facility, attended meetings with plant technical and commercial staff and conducted independent research.  Our analysis considered various impacts on the business value from outsourcing supply including:  the contribution of income from manufacturing the chemical, the nature of fixed operating costs in an industrial setting, the costs that would be incurred for closure and abandonment of the plant, and working capital requirements. 

Baker & O’Brien presented its opinions during an International Chamber of Commerce arbitration proceeding.