Dow will acquire Rohm and Haas Co. for $18.8 billion under an agreement announced Thursday. Dow plans to contribute complementary businesses, including biocides, to the existing portfolio of Rohm and Haas, which will retain its Philadelphia headquarters and continue to do business under its own name. Increased purchasing power for raw materials is a key cost savings under the deal.
Both companies boards of directors have unanimously approved the transaction, under which Dow will acquire all outstanding shares of Rohm and Haas common stock for $78 per share in cash. The deal is subject to approval by Rohm and Haas shareholders, conditions and regulatory approvals. The companies expect to complete the transaction by early 2009. Midland, Mich.-based Dow has 46,000 employees worldwide, and Rohm and Haas has about 16,500 employees.
Dows lube-related products include biocides, hydraulic fluids, ethanolamines, glycols, surfactants and oxygenated solvents. Rohm and Haas makes specialty amines used as building blocks or components in lubricant additives, and metalworking fluid microbiocides and fungicides, among many other products.
Under the agreement, Rohm and Haas will retain its Philadelphia headquarters location, and continue to do business under the Rohm and Haas name. Dow will contribute a number of specialty chemicals business segments, which it said have greater synergy with the Philadelphia companys established strengths, to the Rohm and Haas portfolio.
Dow plans to establish an advanced materials business unit at Rohm and Haas current headquarters and to contribute complementary Dow businesses to Rohm and Haas existing portfolio, including biocides, coatings and personal care. The total revenue of the new unit will approach $13 billion.
Dow spokesman Chris Huntley said the companies will review carefully what they do in relation to branding and where different operations move.
Dow has some good biocide products, and they also have quite a strong biocide brand as well, Huntley told Lube Report. What we have said is biocides is one of the areas that we will likely move to Philadelphia. The precise details we just dont know at this stage, but we will know quite soon.
Dow plans to retain Rohm and Haas corporate name for the advanced materials business unit to capitalize on the companys established brand value. Two Rohm and Haas directors will join the Dow board of directors, bringing the total size of Dows board to 14.
Dow said the acquisition will strengthen and expand its specialty business and result in a decisive step towards establishing Dow as an earnings-growth company, shifting its portfolios balance towards higher growth, higher margin specialties businesses.
After an extensive analysis of acquisition opportunities in the marketplace, it became clear that Rohm and Haas is the ideal company to accelerate Dows transformation, said Andrew Liveris, Dow chairman and CEO. Rohm and Haas brings us access to new and exciting technologies and offers an extended reach into emerging geographies, all of which are highly complementary to Dows existing platforms and value growth priorities.
Huntley provided examples of the opportunities the acquisition represents in emerging geographic areas. Rohm and Haas has got some wonderful avenues into different industries in Asia with their specific products, he said. We can use some of those channels with our own products.
In general, the companies have very little overlap and complement each other, Huntley said. For example, while both have strong presences in Asia, they have different strengths.
They have some activities in China in places where we are not, and they have some activities in India in places where we are not, Huntley said. By the same token we have a very strong presence in Latin America, where they dont. That presents growth opportunities in Latin America for them as that too is an emerging geographical region.
Raj Gupta, Rohm and Haas chairman and CEO, said that through the transaction, Rohm and Haas will have a broader and more global leadership position in a range of specialty chemicals and material segments. He said it will also enjoy full integration in the chemical value chain that will allow for reliable and cost competitive raw materials.
Dow said key areas of cost savings include increased purchasing power for raw materials, manufacturing and supply chain work process improvements, and elimination of redundant corporate overhead for shared services and governance.
Essentially its because the more of a product you buy from a supplier, the more leverage you can have over the cost of that – its a matter of volume, Huntley said about the raw materials purchasing power. Its really about the volume youre purchasing that gives you some ability to negotiate a better price.
Financing for the acquisition includes an equity investment by Berkshire Hathaway and the Kuwait Investment Authority in the form of convertible preferred securities for $3 billion and $1 billion respectively. Last December, Dow announced a joint venture with Petrochemical Industries Co. of the State of Kuwait. Citi, Merrill Lynch and Morgan Stanley – financial advisors on the transaction – have all committed debt financing.