Union Carbide is a company that manufactures chemicals and polymers. Currently, the company is among the leaders in the industry and has a good market share and revenues. The company deals with a number of household products that buyers transform before selling them to the end consumers. Some of the companies that purchase products from Union Carbide include automotive, wire and cable, agricultural establishments, and organizations, which sell personal care products. In 1984, the company suffered a crisis when gas leaked from its plant-based in India and killed several people. Due to the crisis, the company’s revenue fell sharply and its ratings in the overall market decreased. To redeem itself from the crisis, the company had to undertake quick restructuring procedures. Therefore, the essay evaluates the contributions of major participants, concludes by reviewing the results of the case, and supports the course taken by Union Carbide to restructure and address the crisis.
Contribution of the Major Participants
Some of the major participants, which played an important role and contributed towards the recovery of Union Carbide, include Morgan Stanley and First Boston. First Boston and Morgan Stanley were among the leading investment banks in the United States. The banks worked together with the company and ensured that it recovered from the shock. To redeem the company from the crisis suffered in the aftermath of the leakage, the banks provided a number of deals that facilitated quick and effective restructuring. Eccles and Crane explain that Morgan Stanley helped the company in aspects of debt offerings and provided advice on the necessary financial strategies (12). Moreover, the bank provided expert advice on the issue regarding the CAF takeover, which threatened to reduce the strength and management of the company. From the expert advice of Morgan Stanley, Union Carbide decided to divest some of its products including automobiles and household merchandise. As a result, Union Carbide made wise financial decisions, which facilitated gradual recovery from the crisis. The role played by Morgan Stanley occasioned from the long-term friendship and good relationship that it had with the company.
Consequently, First Boston was instrumental in helping Union Carbide regain its initial dominance in the chemical market. Among the initiatives taken by the bank was its expert advice on price swapping that helped the company settle over $700 million in debts (Eccles and Crane 16). The decision to seek expertise on the right swapping strategy transpired after a meeting with several commercial and investment banks that included Morgan Stanley, Salomon Brothers, and First Boston. Of all the banks, which offered their expertise on the issue, First Boston gave the advice required by the company. In addition, First Boston accepted to purchase some of the company bonds. The decision to purchase the bonds was practical in advancing the process of rejuvenation in Union Carbide. First Boston decided to buy bonds worth $207 million in an open market and was to resell them back to the company at an agreed interest rate. Notably, the major contribution undertaken by First Boston in redeeming Union Carbide was its decision to provide a loan of about $2.5 billion to the company. The funding enabled the company to achieve its goals, restructure, and settle its debt burden.
Review of the Results
The results of the case were positive, and hence, the company regained its position in the chemical industry. Participation of Morgan Stanley and First Boston helped Union Carbide make informed decisions and establish an impressive performance. Out of the several deals that the company made with the banks, the outcomes led to a strong organization that had a good reputation and a large market share. According to Eccles and Crane, when the crisis escalated and the challenges increased, the company decided to seek advice from the banks, which offered a wide range of expertise (16). The expertise, funds, and swapping decisions provided by the banks to the company, facilitated a series of smart strategies that enabled it to achieve its goals. Through the strategies and advices given by the banks, the company redeemed itself from CAF takeover, and other challenges experienced during the crisis and its aftermath.
Moreover, the positive nature of the results emanated from the idea of price swapping, purchase of bonds, and loans that First Boston gave to Union Carbide. The idea of price swapping that First Boston and other commercial and investment banks gave to the company led to a settlement of about $700 million debts. By settling the debts, the company relieved itself from its high debt burden. Eccles and Crane state that when First Boston decided to purchase the bonds of Union Carbide and eventually give a loan of $2.5 billion to the company, the results were great and exceptional (23). Apparently, the relationship led to good results for the participants, which gained from the dealings. Through the sale of the bonds purchased from the company and funding, First Boston realized more than $70 million and gained the trust of Union Carbide. Moreover, Morgan Stanley became a close friend of First Boston and Union Carbide, and hence, increased its business prospects.
Support for the Chosen Course
The course that the company chose facilitated its gradual debt settlement, and restructuring, and thus, was important. Although Union Carbide experienced a crisis that greatly affected its performance, it rejuvenated and regained its position in the market. During the process, the company developed strong relationships with First Boston and Morgan Stanley and attained a good market share. The relationships flourished since banks such as First Boston enjoyed simultaneous gains through their participation in solving the crisis and debt burden of the company (Eccles and Crane 32). Fundamentally, involvement of the banks in its quest to deal with the crisis was one of the smartest things that the company executed, and as such, it led to rewarding and positive outcomes.
Essentially, the company chose the best possible system of redress to solve the crisis and recapitalize. By accepting to work with banks such as Morgan Stanley and First Boston, the company acted in a swift and assertive manner. As a result, it gained trust and confidence from the banks, a factor that culminated in their expert advices and funding. It is remarkable to note that the company achieved its objectives through the course. Expert advices obtained from the banks and funds that Union Carbide received from them is a factor that compounds the effectiveness of the course. The implication of positive results obtained from the course chosen by Union Carbide reflects a best possible solution for the challenge. Eccles and Crane highlight that cooperation among the company and the banks led to a range of positive outcomes on the participants (33). Therefore, the course that the company chose to undertake was the best possible in management of the crisis and recapitalization.
Conclusions and Recommendations
Union carbide needs to employ certain recommendations for successful management of any future recurrences of the crisis. Some of the recommendations include hiring employees, who have the required expertise and developing good working relationships with supportive organizations such as commercial and investment banks. It is highly recommended that Union Carbide ensure that its employees have the required expertise so that accidents like the one in India reduce. Furthermore, the company needs to develop and sustain close relationships with supportive organizations because they provide the required solutions and funds in case of accidents or emergencies.
Eccles, Robert, and Dwight Crane. Doing Deals: Investment Banks at Work. Boston: Harvard Business School Press, 1988. Print.