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Dow’s Bid for Rohm and Haas

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Synopsis: Dow is acquiring Rohm and Haas from Ingersoll-Rand at an agreed price per share of $78. However, a deal with Kuwait’s Petrochemical Industries Company, which was supposed to generate $7 billion of cash to be used to finance the acquisition, had recently fell-through. The hiccup has led to Rohm taking legal action to force Dow to complete the acquisition as required by the merger agreement. The standalone value of Rohm’s share price is currently at $46.77 while the synergies could almost double that to $94.63 per share. By going ahead with the deal Dow would need to raise capital and that might lead to a lower bond rating.

1. Why does Dow want to buy Rohm and Haas?
Dow believes the acquisition of Rohm and Haas would be…show more content…
So the price per share is $46.77.

Value of the cost synergies and growth synergies
In order to recognize the cost synergies, Dow had one time cost of $1.3 billion spread within two years. They will achieve at least 800 million cost synergies. Growth Synergies are estimated to be between $2B and $2.6B based on expanded market portfolios, increased geographic reach and innovative technologies. Adjusting the cost synergies we calculated an equity value per share $94.63 per Rohm and Haas share. 2009 2010 2011 2012
One time cost of synergies over two years $ (650.00) $ (650.00) $ - $ -
Annual cost synergies $ - $ - $ 800.00 $ 800.00
Total synergies $ (650.00) $ (650.00) $ 800.00 $ 800.00
Tax 26% $ (169.00) $ (169.00) $ 208.00 $ 208.00
After tax cost synergies $ (481.00) $ (481.00) $ 592.00 $ 592.00 FCF $ (481.00) $ (481.00) $ 592.00 $ 592.00 Terminal value $ 9,290.00
Total cash flow $ (481.00) $ (481.00) $ 592.00 $ 9,882.00
PV of cash flow $ 6,742.17
Estimated growth synergies range $ 2,000.00 $ 2,600.00
Total $ 8,742.17 $ 9,342.17
Average basic shares 195.20 $ 195.20
Per share $ 44.79 $ 47.86 stand-alone price $ 46.77 $ 46.77
Stand-alone price plus synergies $
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