EMPIRICAL CHEMICALS LTD. (A):
THE MERSEYSIDE PROJECT
Late one afternoon in January 1992, Jim Hawkins told Frances Trelawney, “No one seems
satisfied with the analysis so far, but the suggested changes could kill the project. If solid projects
like this can’t swim past the corporate piranhas, the company will never modernize.”
Trelawney was plant manager of Empirical Chemicals’ Merseyside Works in Liverpool,
England. Her controller, Jim Hawkins, was discussing a capital project she wanted to propose to
senior management. The project consisted of a £7 million expenditure to renovate and rationalize
the polypropylene production line at the Merseyside Plant in order to make up for deferred
maintenance and exploit opportunities to achieve increased production efficiency.
Empirical Chemicals was under pressure from investors to improve its financial performance
as a result of both the worldwide recession in the chemicals industry and the accumulation of the
firm’s common shares by a well-known corporate raider, William Lord Bones. Earnings per share
had fallen to £4.55 at the end of 1991 from £12.75 at the end of 1990. Trelawney thus believed that
the time was ripe to obtain funding from corporate headquarters for a modernization program for the
Merseyside Works—at least she had believed so until Hawkins presented her with several questions
that had only recently surfaced.
Empirical Chemicals and Polypropylene
Empirical Chemicals (EC), a major competitor in the worldwide chemicals industry, was a
leading producer of polypropylene, a polymer used in an extremely wide variety of products (ranging
from medical products to packaging film, carpet fibers, and automobile components) and known for
its strength and malleability. Polypropylene was essentially priced as a commodity.
This case was written by Professor Robert F....