Olin Corporation

Olin Corporation is evaluating the financial structure for a proposed joint venture in Brazil. The head of Olin's international operations needs to recommend a financing plan as well as the project to the directors. The case is a vehicle for analyzing overseas investments, joint ventures, and the financial structure of overseas subsidiaries. Excerpt UVA-F-0874 OLIN CORPORATION Bill Schmitt, vice‑president for International Operations for Olin Corporation, was preparing a presentation concerning a project that would expand Olin's involvement in Brazil. Schmitt and his team were proposing to establish a joint venture that would be 50 percent owned by Olin's Brazilian subsidiary and 50 percent owned by a subsidiary of a leading private Brazilian company, Votorantim. The joint venture, to be called Nordesclor, would construct a calcium hypochlorite plant to produce HTH7, Olin's registered brand name for its swimming pool chemical‑treatment product. At this time, there was no HTH7 manufacturing facility in Brazil. Olin Brasil currently imported HTH7 from an Olin plant in Tennessee, had it repackaged, and sold it directly through local pool shops. Olin had begun discussions with Votorantim five years earlier, in 1983, but had decided to find out more about the Brazilian market for HTH7 before investing in a local production arrangement. A market research survey and subsequent new marketing program had dramatically increased HTH's7 market share, and Schmitt believed many benefits could be gained by moving to local production. Because this would be the first time Olin Chemicals had made a major investment in Brazil, Schmitt wanted to prepare a presentation highlighting all the advantages of this international investment and addressing any concerns the board of directors might put forth. Olin Corporation Olin Corporation was a diversified company whose business was concentrated in chemicals, metals, and applied physics, with special emphasis on electronic materials and services, aerospace/defense, and water‑quality management. Currently Olin's international operations contributed approximately 20 percent of the company's total sales. (See Exhibit 1 for financial data for 1986 and 1987.) One of Olin's goals was to double the sales and profit contributed by its international businesses by 1991. Because little growth was projected for exports, the company estimated that overseas operations and joint ventures had to grow at a 20 percent compound annual rate to meet this objective. In early 1988, International Pool Chemicals appeared to be especially promising to Olin as a growth area. Olin had been producing swimming pool chemicals for over 30 years and had always prided itself on consistently providing the highest quality products in the market. Plants in Charleston, Tennessee, and in South Africa produced its total supply of HTH7. Olin had begun exporting HTH7 to various Latin American markets, including Brazil, in the 1960s, and the Latin American region had become one of Olin's most successful in terms of profitability and market share. Olin's Brazilian segment was actually more profitable than its domestic calcium hypochlorite business on a per‑pound basis. . . .