Issue Date: July 10, 2008
Dow Bids $19 Billion For Rohm And Haas
Dow Chemical has agreed to acquire Rohm and Haas in a deal valued at $18.8 billion. Dow says the acquisition of the Philadelphia-based specialties major will make it the world's leading specialty chemical and advanced materials company. Dow is the world's second largest chemical firm behind Germany's BASF.
Rohm and Haas, which has business in specialty materials markets including building and construction, electronics, personal care, and coatings, generated sales of approximately $8.9 billion in 2007. Dow's 2007 sales were $53.5 billion.
The agreement is the second shoe to fall after Dow's December deal to put its commodity chemical operations into a joint venture with Petrochemical Industries Co. of Kuwait (PIC). At the time, Dow CEO Andrew N. Liveris said his company was on the lookout for a potentially major acquisition to boost earnings and reduce cyclicality (C&EN, Dec. 17, 2007, page 7).
Dow expects to get $9.5 billion from the Kuwait deal. Financing for the Rohm and Haas acquisition includes a combined $4 billion investment by Berkshire Hathaway and the Kuwait Investment Authority. Dow expects that the PIC and Rohm and Haas deals together will boost performance products and advanced materials to 69% of its total sales, compared with 51% today.
The deal will be Dow's second acquisition of a major U.S. chemical company in the past decade. The company purchased Union Carbide in 2001 for $11.6 billion and shortly thereafter went about dismantling the Connecticut-based firm and integrating it into existing Dow operations.
The integration of Rohm and Haas will proceed differently, according to both companies. The firm will retain its Philadelphia headquarters and its name. Dow will contribute a number of its specialty chemical businesses—including coatings, biocides, and personal care—to establish Rohm and Haas as an advanced materials business with annual sales of approximately $13 billion. Two Rohm and Haas directors will join Dow's board of directors.
"This acquisition affords us a tremendous opportunity to ensure the new Dow draws from the strengths of each of the two companies, capturing the best practices and best people from each organization as we pursue our vision of becoming the largest, most profitable, and most respected chemical company in the world," Liveris says.
The boards of directors of both companies have unanimously approved the transaction, but it remains subject to approval by Rohm and Haas shareholders. The Haas family trust, which controls approximately 33% of Rohm and Haas outstanding stock, has indicated its support for the agreement. The companies target completion by early 2009.
"I have relentlessly talked to our employees, customers, and stockholders about the imperative to seek opportunities for transformative change," says Raj L. Gupta, CEO of Rohm and Haas. "In its 100-year history, Rohm and Haas has constantly reinvented itself, and this agreement offers outstanding potential to do the same yet again."
The Philadelphia company did not appear to be for sale, says John E. Roberts, a chemical stock analyst with Buckingham Research. With Dow's bid of about a 75% premium to Rohm and Haas's stock price close on Wednesday, July 9, and a 30% premium to the company's all-time high, "it would appear that Dow offered a preemptive price that the Rohm and Haas board would have a hard time refusing," Roberts says. "We assume BASF would have been interested if Rohm and Haas had been for sale."
Roberts says Rohm and Haas is a strategic fit for Dow, partly because Rohm and Haas purchases propylene for its acrylics operations and Dow produces propylene. Among other synergies, Rohm and Haas's electronics business offers Dow a significant opportunity to bolster its small business in that market, he says.
The effect on chemical pricing is less clear, Roberts says, adding there is no indication the deal will help Rohm and Haas in its struggle to pass through rising raw material costs. "Dow has been struggling as well," Roberts says. Rohm and Haas and Dow are two of only a few U.S. chemical companies to report an earnings decline in this year's first quarter.
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