Acquisition for a Better Trade: Dow Chemical buys Rohm and Haas
After both sides waffled over the issues for months, Dow Chemical decided in
March 2009 to go through with its acquisition of Rohm and Haas, which resulted
in a better trade for both parties. The deal wasn't finalized until the two
parties involved were scheduled to go to trial over Dow's inability or
refusal to close the deal. That pushed the deal to the finish line.
Rohm and Haas shareholders received just less than $79 per share, plus a
ticking feel of around 99 cents per share. Rohm's two largest shareholders,
the Haas Family Trusts and Paulson and Company, will receive up to $3 billion
in the form of preferred equity securities in Dow. Paulson, a hedge fund
firm, owned 18 million Rohm shares.
The negotiations began in July 2008 when Dow agreed to buy Rohm and Haas for
$78 per share. The move was an attempt by Dow to increase its number of
high-end products like paints, coatings and electronics. Dow agreed to pay a
premium in excess of 70 percent for the company. Both parties believed this
would be a better trade. The deal was expected to help both companies build
their purchasing power and link their manufacturing and supply chain
operations.
Dow began to waffle when its $17.4 billion plastics joint venture with Kuwait
Petroleum broke apart, which left Dow in a financial bind. Dow wanted to use
those funds to help monetize the deal for Rohm. The demise of the Kuwaiti deal
put the Rohm purchase in jeopardy. Financier Warren Buffet, who agreed to buy
$3 billion in preferred Dow stock to help fund the deal, remained committed
to the process.
Dow had since been working to avoid a downgrade in credit, a move that would
trigger loan defaults and limit the company's access to funds. It has already
cut jobs, trimmed dividends by 64 percent and considered selling assorted
assets.
Less than a week after the acquisition was complete, Dow reneged on its
promise to place two Rohm representatives on the corporate board. In July 2008
Dow had agreed to the move in order to signal that Rohm would be a valuable
part of the team. What began as a better trade has gotten a bit ugly.
Dow Chemical is the second-largest chemical manufacturer in the world by
revenue, trailing only German-based BASF, and the third-largest by market
capitalization, after BASF and DuPont. Dow has a presence in more than 175
countries and employs more than 46,000 people worldwide. In December 2008,
Dow reorganized its workforce, closing 20 facilities and eliminated 5,000
full-time jobs.
Rohm and Haas is a manufacturer of miscellaneous materials. It employs more
than 17,000 people in 27 countries. The company flourished in World War II by
making Plexiglas, a clear plastic needed for airplane canopies. In 1999, Rohm
and Haas acquired the Morton Salt Company. Rohm and Haas uses advanced
chemistry to give its products unique characteristics, such as low-odor
water-based paints, sunscreens with greater SPF functionality, and more
powerful semiconductor chips.
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