Dow Chemical Co. will be a bigger force in plastics additives as it grows into a higher-value-added company.
The Midland, Mich., firm announced plans July 10 to acquire Rohm and Haas Co., a specialty chemical and materials conglomerate that Dow expects will help it lift sales and profits. The $18.8 billion transaction is expected to close in early 2009, officials said in a webcast discussing the deal.
In addition to basic polymers and engineering resins, Dow has a sizable stake in plastics additives. Its portfolio includes plastomer and copolymer polymer modifiers, biocides, divinylbenzene cross-linker, lubricants, polyolefin dispersions, propylene glycol copolymer anti-stats and scratch preventers, functional polymers that enhance performance and physical blowing agents.
Rohm and Haas' additives lineup includes its widely used acrylic-based impact modifiers and process aids for vinyl and other plastics, heat stabilizers and lubricants for vinyl, specialty waxes, plasticizers and antimicrobial agents. The Philadelphia-based firm has an extensive polymers profile but most of its plastics are aimed at specialty applications such as coatings and other industrial uses. Dow exited the acrylic sheet business 10 years ago.
Dow's per-share offer of $78 was a 74 percent premium over Rohm and Haas' closing price July 9. The premium reflects the faith Dow has in the firm, which only became open to a takeover three weeks ago, according to Dow Chairman and Chief Executive Officer Andrew Liveris.
``Dow has a great deal of respect for Rohm and Haas and values the strong market-facing culture and solid reputation that have made it one of the most successful companies in the specialty sector and such a desirable entity,'' Liveris said in a news release.
``The acquisition of Rohm and 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,'' Liveris stated.
The purchase of Rohm and Haas, combined with Dow putting its basic plastics business in a Kuwait joint venture, will push Dow's performance products and advanced materials portfolio to 69 percent of sales from 51 percent last year.
``When this transaction is completed, Rohm and Haas will be a critical component of the new Dow ... and will be aligned with a forward-looking U.S.-based enterprise, committed to investing in research for new technology solutions to many of the most pressing societal needs,'' Rohm and Haas Chairman and CEO Raj Gupta said in the release.
Dow sees electronics and coatings as strategic markets in which Rohm and Haas has a high profile. Other areas that attract Dow are water solutions, adhesives, personal care, biocides, and building and packaging materials. Dow is active in these areas as well and as a basic materials supplier it can be downstream integrated with much of Rohm and Haas's production. Dow, for example, is a major propylene glycol and acrylates supplier, materials widely used by Rohm and Haas.
The two firms have potential synergies in specialty packaging, Liveris told analysts and investors. Dow's Infuse olefin block copolymer could be married with Rohm and Haas' adhesives expertise to enhance that company's specialty packaging applications, Liveris said.
Dow's announcement comes less than three weeks after it stated major price increases to recover costs. It calculates the Rohm and Haas deal will give it pretax cost synergies of at least $800 million per year. Savings will accrue from purchasing power, process improvements and elimination of redundant overhead.
Dow will pay cash for its stake in Rohm and Haas. Omaha, Neb.-based investment firm Berkshire Hathaway Inc. and the Kuwait Investment Authority, which manages that country's general governmental funds, are also buying in on the deal, putting up $3 billion and $1 billion, respectively.
Rohm and Haas had sales of about $8.9 billion last year. Dow's annual sales are about $54 billion. Rohm and Haas will keep its name and its headquarters, which will be the base for Dow's new advanced-materials business unit. Total revenue for the new business unit, including Rohm and Haas' sales, will be about $13 billion per year.