MIDLAND – Rohm & Haas Co. has agreed to be bought by Dow Chemical Co. in an all-cash deal of $15.3 billion, signaling a consolidation wave in the chemicals industry may be afoot.
And as part of the deal, Berkshire Hathaway Inc. will buy $3 billion in convertible preferred securities, with the Kuwait Investment Authority buying another $1 billion, The Wall Street Journal reported. The latter’s involvement deepens Dow’s connections with the Middle Eastern country, as an arm of its state-owned oil company is creating an $11 billion joint venture including various Dow assets.
Berkshire’s involvement marks the second time in recent months that Warren Buffett is involving his company in financing a buyout. Berkshire is taking a stake in Wm. Wrigley Jr. Co. after its $23 billion acquisition by Mars Inc. Berkshire is also providing $4.4 billion of subordinated debt for the deal.
Dow, which is based in Midland, Mich., is offering $78 a share, a 74 percent premium on the $44.83 that Rohm and Haas closed at Wednesday. Dow shares slid 2.1 percent to $33.24 in premarket trading Thursday. Rohm & Haas was up 68 percent to $75.25.
The coatings and electronic materials company will continue operating under its own name from its Philadelphia headquarters and will incorporate some of Dow’s specialty chemicals units. With the deal, Rohm & Haas’s annual revenue is seen increasing to approximately $13 billion, compared with 2007’s $8.9 billion.
Dow is using the purchase to expand in the specialty chemical business, which produces higher margins, and to reduce the cyclical nature of some of its income.
“The addition of Rohm & Haas’s portfolio is game-changing for Dow,” said Chief Executive Andrew Liveris, emphasizing his desire to recreate the company. Last December, Dow announced a joint venture with Petrochemical Industries Company of the State of Kuwait, and expects the venture and the Rohm & Haas deal combined to represent 69 percent of Dow’s total sales when completed.
Dow expects to generate at least $800 million in annual cost savings through its latest deal.
The purchase has been approved by both boards, and received the blessing of John C. Haas, as the 90-year-old spoke for his family.
The chemicals sector is struggling with higher prices for natural gas and oil, the main feedstock for chemicals, and with lower prices for commodity chemicals, which serve as the basic building blocks for more complex chemicals. The combination is increasingly gouging chemical makers’ margins.
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