Dow Chemical agrees to buy Rohm and Haas

July 10, 2008 6:55:56 AM PDT
Dow Chemical Co. has agreed to buy rival Rohm and Haas Co. for more than $15 billion in cash in a deal that Dow hopes will fuel its growth in the lucrative market of making specialty chemicals. "The addition of Rohm and Haas' portfolio is game-changing for Dow," Chairman and Chief Executive Andrew Liveris said Thursday in a statement announcing the deal.

The $78 per-share deal includes money from a Kuwaiti sovereign wealth fund and Warren Buffett's Berkshire Hathaway. The price represents a 74 percent premium to Philadelphia-based Rohm and Haas' closing share price of $44.83 on Wednesday.

Based on the per-share purchase price and the roughly 196 million shares Rohm and Haas had outstanding as of April 22, the deal is worth about $15.29 billion.

The companies said assumed debt will boost the total value of the transaction to about $18.8 billion.

Rohm and Haas shares soared $29.42, or 66 percent, to $74.25 in morning trading while Dow Chemical shares fell 54 cents, or 1.6 percent, to $33.42.

The acquisition is part of an effort by Dow to move into the higher-margin specialty chemicals market, which may provide a buffer against ups and downs in basic chemical sales. Dow said the deal will make it the world's leading specialty chemicals and advanced materials company.

The companies said they hope to complete the deal by early 2009. Dow expects it to help its financial performance in the second year following completion, with "pretax annual cost synergies" of at least $800 million per year.

Dow in recent months has announced two sets of wide-ranging price increases in an attempt to offset record costs for energy and raw materials. Rohm and Haas also has increased prices, along with some other of the companies' competitors.

Dow plans to establish an advanced materials business unit at Rohm and Haas' current headquarters in Philadelphia and intends to contribute some Dow businesses to Rohm and Haas' existing portfolio, such as coatings and personal care. The total revenue of that new unit is expected to approach $13 billion.

Dow will retain Rohm and Haas' corporate name for this advanced materials business unit. Two Rohm and Haas directors will join Dow's board, bringing the total size of Dow's board to 14 members.

"We believe that by becoming a part of Dow, we secure a brighter future and greater growth prospects for our employees," Rohm and Haas Chairman and Chief Executive Raj Gupta said in a statement.

Dow has annual sales of $54 billion and about 46,000 employees worldwide. It makes everything from the propylene glycols used in antifreeze, coolants, solvents, cosmetics and pharmaceuticals, to acrylic acid-based products used in detergents, wastewater-treatment and disposable diapers.

Rohm and Haas, which has more than 15,000 workers around the globe and had about $8.9 billion in sales in 2007, makes numerous raw materials, including plastics additives, building materials, table salt, paints and coatings. It owns Morton Salt.

The deal has been approved by both companies' boards. It is pending approval by Rohm and Haas shareholders and regulatory approvals. The Kuwaiti Investment Authority is helping to fund the deal.

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AP Business Writer Samantha Bomkamp in New York contributed to this report. ---

On the Net:

Dow Chemical Co.: http://www.dow.com

Rohm and Haas Co.: http://www.rohmhaas.com

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