Ultra: The Quest for Leadership (A)

Ultra is one of a small group of competing Brazilian petrochemical companies, each of which buys raw material and is a minority owner of Copene, a "cracking" company that provides ethylene and other materials. Because of an industry restructuring, an auction of shares is being held that would provide a controlling position in Copene if Ultra was successful with its bid. Students must decide what Ultra should bid for this controlling position. The case provides cash flows and cost of capital information for estimating the present value of the company. Estimating the amount to bid is complicated by several factors. First, one of the competing owners is a likely bidder in the auction. Thus, if Copene did not win, it would end up with an illiquid minority position in a key supplier that was owned by a competitor. In addition, the valuation must take into account the uncertain Brazilian economic environment. Finally, the CEO and other senior decision makers have an ownership stake in Ultra, so they have a significant incentive not to overpay and destroy shareholder value.