Case: Dow’s Bid for Rohm and Haas

1632 words 7 pages
Why does Dow want to buy Rohm and Haas? Was the $78 per share bid reasonable? Why was the deal structured as all cash?
Dow Chemical (“Dow”) wants to acquire Rohm and Haas (“Rohm”) for its strong operational and strategic fit. When Liveris became Chairman and CEO of Dow, he shifted the focus to growth and profitability by becoming an asset light producer of commodity chemicals and becoming a high-valued-added producer of specialty chemicals and advanced materials. This combination is a step in that direction that would bring together best-in-class products and technologies, broad geographic reach, and strong industry channels for growth opportunities. Rohm would also expand Dow’s network into emerging markets and alter Dow’s earnings
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The termination fee is also pretty hefty on both sides to keep both parties committed to the transaction. Lastly, the hell or high water provision requires Dow to take all necessary steps to obtain regulatory approvals. Please see Exhibit 2 for more details on the allocations of these key risks.
What major events took place between the announcement of the merger and anticipated closing (early 2009)? To what extent could they (or should they) have been incorporated in the merger agreement?
Shortly after the deal was announced, the global financial crisis hit with what began as a downturn in the U.S. housing market in 2006 that spiraled to the downfall of the U.S. capital markets in the falloff 2008. Several financial institutions collapsed and required bailouts to survive. The 19 banks’ (providing Dow’s bridge loan) market capitalization fell by over half from July to December 2008. The chemicals industry was hit hard as the recession caused demand to fall sharply, forcing firms to cut production, shut plants, and fire workers. S&P reduced the credit rankings to junk status for many chemical companies. Dow’s own share price plunged by more than 50% and reported a 4th quarter loss of $1.6 billion, with operating rates falling to 44% in December 2008, the lowest level in 25 years. Rohm’s performance was also declining and forced to restructure its firm. In November 2008, Dow and PIC signed the K-Dow JV agreement, however in December 2008, the PIC