Dow Chemicals, one of the world’s leading specialty chemicals companies (2007 revenues: US$ 54 billion), is acquiring Rohm & Haas (2007 revenues: US$ 8.9 billion) for US$ 78 per share in an all-cash deal valued at US$ 18.8 billion. The purchase price represents a 74 per cent premium over Rohm & Haas’ closing share price on 9/07/2008. The combined entity will become the world’s leading producer of specialty chemicals and advanced materials. The funding for the acquisition is being supplemented by equity investments of US$ 3 billion from Berkshire Hathaway and US$ 1 billion from Kuwait Investment Authority. Debt financing has been committed by Citi, Merrill Lynch and Morgan Stanley.

The agreement provides that Rohm & Haas will continue to operate out of it’s headquarters at Philadelphia and it will also continue to use the Rohm & Haas brand-name, which has considerable brand equity. In addition, Dow will contribute a number of complementary specialty chemicals business segments to the Rohm & Haas portfolio which have greater synergy with the latter; this move will increase Rohm & Haas’ annual revenue to about US$ 13 billion.

Dow’s margins have been under considerable pressure and it has been looking at ways of reducing its dependence on products like polyethylene and styrenics that have largely become commoditised. Last December, it had announced a joint venture with Petrochemical Industries Company of Kuwait. With this deal and the Rohm & Haas acquisition, the share of performance products and advanced materials in the total Dow portfolio will go up from 51 per cent to 69 per cent.

Rohm & Haas had not really been on the block and the move has come as a bit of a surprise. It is felt that Dow actually made a pre-emptive strike by agreeing to pay a hefty premium, an offer that the Rohm & Haas board could not refuse. This is Dow’s largest acquisition so far, eclipsing the US$ 12 billion that they shelled out for Union Carbide Corporation in 1999. (They are still facing problems in India over the Bhopal gas leak as a result of this.)

Rohm & Haas had also announced a joint venture last year with Reliance Industries to set up an acrylic monomer complex in Jamnagar at an investment of over US$ 250 million, a move that may now be reviewed. They are also setting up a new 30,000 – 40,000 MT per annum acrylic emulsion plant near Chennai and doubling their capacity at their 35,000 MT per annum plant at Mumbai in addition to setting up an R & D centre and an engineering and process development facility.

According to Andrew Liveris, chairman and CEO of Dow, “The acquisition of Rohm & Haas is a defining step in our transformational strategy to shape the ‘Dow of Tomorrow’, a high value diversified chemicals and materials company, creating the largest specialty chemicals company in the United States with a leading global position in performance products and advanced materials.”