Dows bid on Rohm and Haas

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Corporate Finance case 2 Dow’s Bid for Rohm and Haas Justin Overtoom 6132111 Rutger Go 10782923 Binghong Cheng 10824588 Xianjing Cai 10874089 23-02-2015Introduction Dow started as a manufacturer of commercial bleach in 1897, and was founded by Herbert Dow. He merged his company in 1900 with Midland Chemical, which lead to diversification of his portfolio to agricultural and food products. In 1912, Dow started to pay dividends every quarter without any reductions or interruptions. By doing so, they were the only Fortune 200 firm that established these figures. Dow became a major player in the M&a field, since they acquired between 1983 and 2007 95 business, took stakes in 58 firms and divested 166 businesses. In 2006,…show more content…
The share price of Rohm and Haas is $65.01 based on the growth rate of 2% and a WACC of 8.7%. The share price differ between lowest value of $56.32 and highest value of $104.80, based on the same input as with the analysis with no synergies. In both cases, the share price is below $78 so if Dow offers this price in both situations, the will not profit from this acquisition. However, we will still perform the 50/50 and multiples valuation in order to see which is the best in the situation if Dow is obliged to acquire Rohm and Haas. Looking at case were synergies are created and using the 50/50 method, we get a share price of $55.79 + ($65.01 - $55.79)/2 = $60.4. As we already mentioned, this price does not match the $78. Now using the gross profit of Rohm and Haas as a percentage of the gross profit of both companies combined, we get a multiple of 26.11%. Using this 0,2611 multiple, the appropriate share price is $55.79 + (0,2611 * (65.01 - $55.79)) = $58.20 Again, this is below the share price of $78, which makes the outcomes of both methods unfavorable for Dow. Now let us look at the revised forecast. Since this is a post-crisis forecast, predictions were lowered, which lead to a lower overall value. Hence, this will be reflected in our sensitivity analysis by lower share prices. Below are our findings. As already predicted, share prices are lower in the revised forecast due to the crisis adjustments. For the sake of the case, we will also perform a 50/50

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