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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)