Dow Chemical acquires Rohm & Haas for $18.8 billion

10 July 2008

America's largest chemicals manufacturer Dow Chemical Co. said today it is acquiring rival Rohm & Haas Co. in an $18.8-billion deal that it called a "decisive move" to strengthen the chemical giant's profit and help buffer itself from cyclical downturns. The purchase exceeds the $12 billion Dow paid to acquire Union Carbide Corp. in 1999.

Michigan-based Dow will pay Philadelphia-based Rohm & Haas investors $78 per share of the company, at a steep 74 per cent premium over the latter's closing price of $44.83 yesterday. Expectedly, Rohm & Haas shares soared more than 65 per cent to $74.25 in pre-market trading. Dow shares slipped 2 per cent to $33.24.

Although the price is considered high, Dow aims to reduce dependence on less profitable products and increase sales of paint ingredients and adhesives. It seems to have found support for its strategy in one of the keenest minds in business – Warren Buffet. The latter's Berkshire Hathaway is funding $3 billion of the deal through equity placement, and the Kuwait Investment Authority is chipping in with $1 billion.

"The addition of Rohm & Haas' portfolio is game-changing for Dow, enabling us to accelerate the growth of our performance business portfolio and affording us a strong position in the global specialty chemicals and advanced materials sectors," said Dow CEO Andrew Liveris in a statement.

"Rohm & Haas brings us access to new and exciting technologies and offers an extended reach into emerging geographies, all of which are highly complementary to Dow's existing platforms and value growth priorities," he said.

Further, the combined company, which is expected to be less vulnerable to business cycles than in the past, should deliver more consistent earnings, Dow said. The acquisition is part of an effort by Dow to move into the specialty chemicals market, to provide the buffer it needs against the ups and downs of basic chemical sales.