Case 1: Gold-Chem

Opening Case Prompt: The client is a company called Gold Chem. They are a manufacturer of a chemical used to refine gold ore. It helps gold refiner’s
Time: separate gold from the other materials that are typically mined with it. Typically, when you pull gold out of the ground, there is a
lot of dirt in it – less than 1% pure – and after using the chemicals that Gold Chem manufactures, it becomes 99.9% pure. Currently
Gold Chem is the largest producer of this particular chemical used in the gold refinery process.

And Recently, however, a new competitor has entered the market – a company called Mega Chemicals, which is a global chemical
company that manufactures over 150 different chemicals. They’ve entered the market about a year ago, and your client is deeply
concerned about this new threat because Mega Chemicals, when you add up all their sales across all their product lines and all
their divisions, is about 50 times larger than Gold Chem, even though Gold Chem is the leader in this particular one chemical.

At the same time, a third company called Worldwide Limited has reached out to Gold Chem to inquire about potentially acquiring
the company.

The client has two key questions they would like you to answer.
• The first question is: given Mega Chemicals’ entry into the business a year ago, what is the anticipated impact it will
have on Gold Chem?
• Second is: should Gold Chem remain an independent company, or should they agree to meet with Worldwide Limited
to potentially be acquired by them?

In answering those two questions, what factors would you consider in making your potential recommendation?
Recap: - Yes / No
- Summary / verbatim
Confirm - Yes / No
objective
- Numbered? Y/N
Clarifying - Gold chem is not a gold refiner
Questions - Customers are gold refiner

Structuring Hypothesis @
beginning? Mentioned H: Y/N ……………………………………………………………………………………………………………………………………………………
Min 2-3
Framework - Ask for time: Y/N
TIIME - Time: ………….
- Numbered categories: Y/N
- Numbered list within each category: Y/N
Max 10 - Justification for categories & Factors: Y/N
mins - Overall Clear: Y/N
- Prioritization categories: Y/N
- Prioritization factors: Y/N
- Concise / use too many words
Follow up If there is no justification for any of the factors:
questions ASK → you mentioned …………, I am curious why would that be important and how it would potentially impact your conclusion
Note: does the answer relate to the hypotheses and client question
Since this is one of the areas you mentioned would be important
- Cost: what do you think would be the key cost components for companies in a business like this, in particularly what do
you think their variable cost components are?
o FC: manufacturing / equipment / real estate (land / facility) / overhead labor / marketing / sales
o VC: manufacturing labor / raw material / transportation
- Other ….
ASK → why would something like materials cost be important in your analysis
Ans: advantage in the cost structure .. details ….

Note: does the answer relate to the hypotheses and client question
Re-ASK → what is your hypothesis here and do you have any initial thoughts based on what you mentioned so far?
- Hypothesis is clear: Y/N
Exhibit Exhibit 1 & 2 Ok let’s move on - Please refer to exhibits 1 & 2
Please take your time to look at them, tell me what observations and insights did you notice
Ask for time: Y/N
Thinking outload: Y/N
Logical way: Y/N
- Insight 1: Market size: $800 million market
o Gold-chem owns 50% market share – #1 in MKT
o Mega chem market share 12.5%
- Insight 2: VC - cost advantage for Gold Chem across the board
o 1000$ raw material (higher efficiency)
o $50 Transportation (slight efficiency)
- Insight 3: gold chem has 4 times production volume → realizing economies of scale
Synthesis: Y/N
Exhibit 3 A/B - Great. Now I would like you to look at Exhibit 3 and familiarize yourself with it, and then I have some scenarios I would
Math like you to analyze.
- First, I have some additional assumptions I want to give you verbally so make a few notes if you want to, and then you
can go ahead and jump into this particular analysis.
We have 3 assumptions:
1- One: assume market volume remains constant at 80,000 tons
2- Second assumption is that Mega Chem can increase its production from 10,000 tons to 40,000 tons
3- The third assumption is that for every 10,000 tons that Mega Chem increases, then Gold Chem volume decreases by
5,000 tons
So, the question is: if Mega Chem reaches a peak production of 40,000 tons, or when it does that, what would each company’s
variable cost per ton be?
Did candidate repeat and confirm Q: Y/N
Ask for time: Y/N
Thinking outload: Y/N
Logical way: Y/N

ANS:
- It sounds like as Mega Chem gets bigger, it gets more efficient, and we have the assumptions around how much more
efficient it gets.
- On the Gold Chem side, as the volume decreases, it gets less efficient. So, some of its costs, particularly
manufacturing, seem to go up and the transportation costs go up as well.
Walk through computation: Y/N

Gold Chem Mega Chem

Production: Decrease to: 31% Increase to: 50%
=4000-(3*500) =10000+(3*10000) =
=40000-15000=25000 = 10000+30000=40000
Mega Chem is stealing some market share
from gold chem, and some from rest of
industry
Raw Material: Same 4000/tom Same: 5000/ton
Manufacturing: Increase: 200/ton for every 5000  Decrease: 200/ton for every 10000 
=4000+(3*200) = 4000-(3*200)
=4000+600=4600 = 4000-600=3400
Transportation: Increase: 50/ton for every 5000  Decrease: 20/ton for every 10000 
=950+(3*50) = 1000-(3*20)
=950+150=1100 =1000-60=940
Total Variable Cost 9700 9340
- There is a difference 360/ton in the favor of mega chem
Synthesis: Did candidate say what it means: Y/N
Ask→ given this information what does it mean for the client?
- The cost position switches
- Mega Chem gets stronger and more efficient
- Gold chem lost its cost advantage when mega chem grew larger to its capacity
o Gold chem will not be # 1 in the market – likely will be 2nd
o As MKT share is stolen away from them, they lost cost efficiency advantage
- The open Q? can they sustain their position as no.2, or is there some way to change the cost structure so they can be
superior somehow → acquisition or being acquired
Refine Ask: What other factors would you consider that might cause you to reverse your recommendation or make your conclusions
Hypothesis stronger? What other factors would you consider before you make a final recommendation?

- It is all about economies of scale so can Gold chem increase its volume / Demand remains flat at 80K tons (no change)
- Can gold chem acquire the small players before mega chem buys them (15,000 tons from all players)
▪ If this happens it can give Gold chem a cost advantage of variable cost 8950 as before
▪ Not a precise comparison: But we will need to assume that the other players have the same
operational efficiency as gold chem used to have (which might not be the case)
- Another way is if gold chem get acquired by worldwide limited – can this help to benefit the efficiencies
and the economies of scale for gold chem
Conclusion Let’s say that you run into the CEO of the company, and the CEO would like to get an update on what you’ve discovered in your
analysis. What would you say to the CEO?
Ask for time: Y/N
First question:
Mention Q first Y/N
- The first question is: given Mega Chemicals’ entry into the business a year ago, what is the anticipated impact it will
have on Gold Chem?
Answer Q first: Y/N
- The impact Mega Chem will have on Gold Chem will be to shift Gold Chem from the #1 market share position, to clear
#2 market share position.
- In addition, from a profitability standpoint given the information we have, the most likely pro t position for Gold Chem
would be to move from what seems to be the most profitable player (which is a little bit of an assumption) to the second
most pro table player.
Reasons:
- Numbered: Y/N
- Reason 1: Data driven Y/N
o It is an economies of scale business – as volume increases it company gets cost efficient, and the reverse is
true
- Reason 2: Data driven Y/N
o Mega chem has the ability and capacity to get big, up to 40K tons in production, as they ramp up they get
the manufacturing cost advantage – so mega chem is able to climb both MKT share and profitability
- Reason 3: Data driven Y/N
o As mega chem increases volume, it is eroding gold chem’s volume, and as an implication there are a lot of
cost inefficiencies arising in the manufacturing and transportation cost. So as mega chem gets bigger, gold
chem gets smaller and its profitability gets worse
- So Mega chem will become no 1 in the MKT and gold chem will unfortunately have to get used to being no. 2
Second question:
Mention Q first Y/N
- Second is: should Gold Chem remain an independent company, or should they agree to meet with Worldwide Limited
to potentially be acquired by them?
Answer Q first: Y/N
- In terms of the client’s second question around acquisitions, an acquisition would potentially make sense if by being a
subsidiary of Worldwide Limited, Gold Chem can improve any of its three major variable costs – sourcing of raw
materials, manufacturing, or transportation. If they can realize an efficiency gain there, perhaps by pooling its
purchasing power with all the other Worldwide Limited divisions or its manufacturing capacity combining facilities, for
example, then it would make sense, and it would be worth having that discussion.