Dow’s Bid for Rohm and Haas Essay

1850 Words Nov 7th, 2015 8 Pages
Dow’s Bid for Rohm and Haas

1.Why does Dow want to buy Rohm and Haas? Dow, a producer of low-valued cyclical commodity chemicals, had future aspirations of being not only the largest but as well the highest valued chemical company in the United States. Its strategy was simple: to be an asset-light company with extremely high growth potential fuelled through advanced technology, geographical reach, strong industry channels and an overall switch in to the advanced specialty chemical and materials market. As a result when the option to purchase
Rohm and Haas was put to market Dow jumped immediately on the opportunity. Rohm and Haas brought with it mass amounts of experience in the specialty chemical business, strong
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As stated in the case, Dow will experience a cost synergy of $800 million annually (to be realized in two years), an additional $2-2.6 billion in additional present value (assumed to be realized in two years) all at the one time price of $1.3 billion. When valuing the benefits as a result of these synergies we found it to be an additional $38.2 per share (Appendix B). This led us to arrive at a total estimated bid price of $84.6 (Appendix C). Although this bid price is $6.60 higher than the actual bid price, our assumptions pertaining to a revenue synergy of $2.3 billion along with very optimistic cost synergy assumptions of $800 million annually make the $78 dollar bid reasonable for the total operations of Rohm and Haas.
2.What are the major deal risks inherent in this merger transaction? How and to whom does the merger agreement allocate these key risks? Hint: analyze the various provisions in case Exhibit 4.
What risk does each provision address and which party ultimately bears the risk?

Risks of delay and termination

Contractual Terms included: Closing Date §1.2, Ticking Fee §2.1a, Reasonable Best Efforts §5.6,
“Hell or High Water” Provision §5.6b, Termination Fees §7.2a, Enforcement and Jurisdiction §8.5.
The risks are made explicit and clear by listing the closing date, ticking fee, termination fees and the responsibility to enforce the terms and provisions. Both parties are required to take all actions to

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