Rohm and Haas deal value surprises Wall Street

Tag : Architectural Coatings

By Euan Rocha
NEW YORK (Reuters) - The 74 percent premium being paid by DowChemical Co (DOW.N: Quote , Profile , Research , Stock Buzz ) for specialty chemical maker Rohm and Haas Co (ROH.N: Quote , Profile , Research , Stock Buzz ) has surprised some on Wall Street, especially in light of theslowdown in the U.S. economy.
Dow, the largest U.S. chemical maker, on Thursday said it wouldacquire Rohm and Haas in an all cash deal for $78 a share, which isa significant premium to the company's closing price of $44.83 onWednesday on the New York Stock Exchange.
The deal significantly broadens Dow's range of product offeringsthat feed into a wide range of end markets. However, Rohm and Haashas a sizable exposure to the architectural paint and coatingsmarket in North America, which has been hurt by the slump in theU.S. housing market.
"The amount Dow agreed to pay for it (Rohm and Haas), does notcreate a lot of near-term value for shareholders," said MichaelJudd of Greenwich Consultants.
"I don't think anyone doubts that Rohm and Haas is a great company.But, I just think paying a 25 percent premium to the high in thestock in the current environment -- Well it just makes one scratchones head," said Judd.
On a conference call, Dow's Chief Executive Andrew Liverisresponded to the concerns about the premium being paid.
"A one day premium is a fascinating topic, which I hope in a weekor two will be irrelevant. Rohm and Haas' stock has dropped 16percent during negotiations and that is not the value of Rohm andHaas," said Liveris. "This is a jewel and there aren't many jewelsout there."
Dow has said it was targeting acquisitions to expand into a widearray of end markets including paints, coatings, electronicmaterials, transportation, agriculture and water treatment. In onefell swoop this deal offers Dow a larger piece of the pie in allthese end markets.