Dow Chemical to buy specialty chemicals maker Rohm and Haas

Tag : Chemical Industry

After the announcement, Standard & Poor's Ratings Services placedthe ratings of Dow on CreditWatch with negative implications,meaning the Midland-based company has a 50 percent chance of beingdowngraded in the next three months. S&P currently holds an "A-"corporate credit rating on the company.
Geoffery Merszei, Dow's chief financial officer, said the qualityand reputation of Rohm and Haas' businesses, brands, products andtechnologies — as well as its work force — make thepremium worth paying.
"While it's hard to put a price on a company's culture and people,this premium recognizes the fact that Rohm and Haas is a highlycoveted asset," Merszei said Thursday to industry analysts andinvestors.
Based on the per-share purchase price and the roughly 196 millionshares Rohm and Haas had outstanding as of April 22, the deal isworth about $15.29 billion. The companies said assumed debt willboost the total value of the transaction to about $18.8 billion.
The acquisition is part of an effort by Dow to move into thehigher-margin specialty chemicals market, which may provide abuffer against the ups and downs common in basic chemical sales.Specialty chemicals are produced for more specific uses, comparedwith those produced as high-volume commodities for manufacturing.
Dow said the deal will make it the world's leading specialtychemicals and advanced materials company.
"There aren't many jewels out there. This is one of them," Liverissaid in the conference call. "The fact that it became availablematched Dow's strategy perfectly."
Buckingham Research Group analyst John E. Roberts said in a note toinvestors that Rohm and Haas has been discussed as a greatstrategic fit for Dow for years and said it didn't previouslyappear that Rohm and Haas was for sale. If it was, Roberts saidGerman chemical company BASF SE would have been interested.
"It would appear that Dow offered a pre-emptive price that ROH'sboard would have a hard time refusing," Roberts wrote.
The companies said they hope to complete the deal by early 2009.Dow expects it to help its financial performance in the second yearfollowing completion, with "pretax annual cost synergies" of atleast $800 million per year.
Dow said the deal, coupled with plans for a joint venture announcedin December with Petrochemical Industries Co., a subsidiary ofstate-owned Kuwait Petroleum Corp., will boost the percentage ofits more profitable sales. Dow said it plans to announce a CEO andheadquarters for the venture next week.
Under Thursday's deal, Dow plans to establish an advanced materialsbusiness unit at Rohm and Haas' current headquarters inPhiladelphia and to contribute some Dow businesses to Rohm andHaas' existing portfolio, such as coatings and personal care. Thetotal revenue of that new unit is expected to approach $13 billion.
Dow will retain Rohm and Haas' corporate name for this advancedmaterials business unit. Two Rohm and Haas directors will joinDow's board, increasing its size to 14 members.
"We strongly believe that by becoming part of Dow, we secure abrighter future and greater growth prospects for our business andfor our employees," Raj Gupta, chairman and CEO of Rohm and Haas,said during the teleconference.
Liveris said the deal came together over the last three weeks, andit was only recently that it became possible to acquire Rohm andHaas.
Dow has annual sales of $54 billion and about 46,000 employeesworldwide. It makes everything from the propylene glycols used inantifreeze, coolants, solvents, cosmetics and pharmaceuticals, toacrylic acid-based products used in detergents,wastewater-treatment and disposable diapers.