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Union Carbide Essay

1075 words - 5 pages

1. How would you characterize the key turning points in the case for Union Carbide, Morgan Stanley and First Boston?
Union Carbide was a fortune 500 company (37th) in 1983. It seemed to have limitless potential for growth until a gas leak in India killed nearly 2000 people. This unfortunate situation caused the Wall Street Journal to speculate that Carbide might declare bankruptcy which, in turn, led to the stock price going down as well as a downgrade in credit by Moody’s (from A2 to A3). In August 1985, GAF, a much smaller company, purchased Carbide company stock with the intention of a takeover. At that point, Union Carbide knew that, in order for it to go back to its previous ...view middle of the document...

The first major turning point in Morgan Stanley and Union Carbide’s relationship was when they lost the interest swap deal to First Boston. This was not recognized as a turning point by Morgan Stanley because interest swap deals were not a major part of Morgan Stanley’s business. At this point, however, Union Carbide stopped looking to Morgan Stanley for its most important decisions. The other key turning point took place at the end of the case when the billion dollar business deal was awarded to First Boston. This is when Morgan Stanley finally noticed that they were no longer the exclusive bank to which Union Carbide would give their big business.
First Boston began its relationship with Union Carbide in 1983, when it won a deal to finance the purchase of a ship ($140 million deal). Though they knew that Carbide had a strong relationship with Morgan Stanley, First Boston continued to monitor Carbide for potential business opportunities. Because of the 1930 ship deal, a relationship was established between Jamerson and some of the junior members of Union Carbide. However, Carbide still relied on Morgan Stanley for most of its business deals. The next key turning point in strengthening the relationship between Carbide and First Boston was when First Boston won the deal to reduce Carbide’s interest expense. This allowed Jamerson (and thereby First Boston) to gain access to company information and become knowledgeable enough to propose a bond buy back for Carbide, which they ended up doing. At this point, they had established a strong enough relationship that First Boston was one of the four banks invited to present a proposal to further reduce interest, relax covenants, and protect Carbide from another corporate takeover attempt. The final turning point was when they were awarded the billion dollar business deal and solidified their position of one of two investment banks that Union Carbide could turn to in times of need.

2. What are the criteria used by Union Carbide to select a banker in their time of crisis?
Initially, Union Carbide turned to Morgan Stanley in times of crisis. They felt that Morgan Stanley knew their company and would best be able to offer reliable advice. Their relationship and previous business dealings were enough...

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