Dow to buy Rohm & Hass

Dow chemical co, the biggest US chemical maker, agreed to buy Rohm & Hass Co for about $18.8 billion to increase sales of more lucrative electronics materials and adhesives.  The purchase is the largest in Dow’s history.  Dow will pay $78 in cash for each Rohm & Hass share, 74% more than 9th July ’08 closing price.  Financing includes equity investments of $3 billion by Warren Buffett’s Berkshire Hathway Inc and $1 Billion by the Kuwait Investment Authority, Midland, Michigan-based Dow Chemical said in a statement.

Dow, which raised prices for June and July more than 20% faces a “margin squeeze” as rising oil prices cut profits from sales of polyethylene and Sytrofoam, Chief executive officer Andrew Liveris said in an interview.  Rohm & Hass generated 31% of its 2007 profit from materials used to make electronics such as computer chips.  “This deal uses up much of Dow’s firepower,” Martin Evans, an analysts at Cazenove in London, said in a report.  “The premium is high as is often the case when chemical assets are acquired and is a necessary part of their transformation away from commodity exposures.”

The purchase is the biggest in Dow’s 101-year history, exceeding the $12 billion Dow paid to acquire Union Carbide Corp in 1999.

Rohm & Hass is the World’s largest producer of acrylic paint ingredients and also makes chemicals used in adhesives, packaging materials and personal care products.  Dow said the unit that will include Rohm & Hass’s business will have annual revenue of about $13 billion.  Dow had $53.5 billion in sales last year.

The purchase will have pretax cost synergies of at least $800 million per year from increased purchasing power for raw materials, supply chain improvements and the elimination of redundant corporate services and governance, Dow said.

“We only ever had two or three companies in our vista that made sense for us,” Liveris said and further added that “And our patience and our discipline, the wait for the right moment and the right time for the right property, when it becomes available you make the deal happen.”

Dow Chemicals’ acquisition of the Indian born billionaire Raaj L Gupta headed speciality chemical company Rohm & Hass for over $18 billion, is likely to impact its proposed joint venture with Reliance Industry (RIL) and expansion plans in India worth over $100 million.

RIL sources said they would wait of hear from both Rohm & Hass and Dow chemicals on the future of the joint venture project.  “We have a good working relationship with Dow Chemicals and hope the development would not affect the proposed joint venture,” said RIL source.

“I am yet to get more details on the acquisition and so it is early to comment on our business development plans in India,” said Harish Badami, president and managing director of Rohm & Hass (India).

The US-based Rom and Haas had entered into an agreement with RIL in March last year to set up an acrylic-monomer complex in Jamnager at an investment of over $250 million.

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