Case: Dow’s Bid for Rohm and Haas

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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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Thus, if one completely removes the revenue synergies, as these are typically the most difficult to achieve in comparison to cost synergies, the implied share prices fall right near the $78 bid price, which makes it a reasonable bid.
The reason why it was structured as an all-cash deal was driven by the fact that 32% of Rohm’s shares wanted to sell substantially all of their shares within 1.5 years. Furthermore, Dow had a potential cash inflow of over $7 billion in cash from the JV agreement, a $4 billion financing option of 8.5% convertible preferred equity and $13 billion in bridge loans. When compared to the 8.5% WACC, these options may potentially be less expensive than issuing equity.
What are the major deal risks inherent in this merger transaction? How and to whom does the merger agreement allocate these key risks? (See, in particular, case exhibit 4.)
Some of the major deal risks inherent in this merger transaction are as follows. Dow will have to make integration decisions that are absolutely critical to making the acquisition pay off through the cost and growth synergies. Additionally, Dow agreed to a contract with no financing out, which means that the offer is not contingent on Dow securing financing. Furthermore, the material adverse effect clause stipulates that any adverse effect to the specialty chemical industry or the economy or markets generally is excluded. Also, if the merger does

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