dows bid for rohm and haas

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1) Introduction
The case presents an American company Dow, producer of commodity chemicals, who is in the final stages of acquiring another company Rohm and Haas. Dow’s CEO has been working for four years to transform Dow from a producer of low-value, highly cyclical commodity chemicals to a producer of high-value, specialty chemicals and advanced materials. Rohm is a perfect match for Dow in respect of the strategic and financial perspective. Dow is also pursuing another key deal with Kuwait’s Petrochemical Industries Company (PIC) that was supposed to generate $7 billion cash net of tax which could be used to finance acquisition of specialty chemical maker Rohm & Haas for $18.8 billion all cash deal. However, by late 2008,
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We explore the Equity Value’s sensitivity to the discount rate as well as to the projected growth rate. This sensitity is shown in Table . Using the baseline assumptions (WACC=8.5%, growth rate=2%), we arrive at a base equity level without synergies of $46.41 per share. However, this value is quite sensitive to both the WACC and growth rates. The overall spectrum of base values ranges from $27.75/share to $73.42/share, with the baseline assumptions falling squarely in the middle.

Table 4: Per-Share Equity Value without Syergies
Value of the Cost Synergies
To be able to recognize the cost synergies, Dow had to incur a one time cost of $1.3 billion spread over two years. Dow also stated that it would take 2 years for them to fully recoginize the cost synergies. We found that $800 million of cost synergies would be worth and additional $32.18 per Rohm and Haas share.
Value of the Growth Synergies
Growth Synergies are estimated to be between $2B and $2.6B based on expanded market porfolios, increased geographic reach and innovative technologies. We assume that these Growth Synergies would also take two years to completely recognize. The equity value per Rohm and Haas share is stated in the table below to view the difference between $2B and $2.6B:

Sensitivity Analysis

$ 2,000 $ 2,300 $ 2,600
$ 5.90 $ 6.75 $ 7.67
Table 5: Per-Share Equity

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