Essay about Dows bid on Rohm and Haas

3143 Words Feb 16th, 2015 13 Pages
Corporate Finance case 2
Dow’s Bid for Rohm and Haas

Justin Overtoom 6132111
Rutger Go 10782923
Binghong Cheng 10824588
Xianjing Cai 10874089
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,
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These synergies are expected to create between 2 and 2.6 billion dollars, which gives an average of 2.3 billion.
Second, potential cost synergies consist of purchasing synergies, shared services and governance, manufacturing & supply chain improvements and work process optimization. These synergies are expected to generate 0.8 billion dollar.
The values of these synergies combined totals a 3.1 billion dollar gross benefit, which is a netted by deducting the 1.3 billion cost of implementation, leaving a value of 1.8 billion dollars.

In order to make the most suitable valuation and draw the best conclusion for the reasonability of the share price of $78, we take the original and revised forecast into account. Both cases are also used for the sensitivity analysis to be as specific as possible.
Below are the sensitivity analyses of Rohm and Haas for the original forecasts.

Based on our assumptions, share price of Rohm and Haas is $55.79 without synergies and $65.01 with synergies. These values differ a little from the share price we found in our valuation analysis, however this is due to rounding and number of decimals difference in WACC and growth percentages.
Lowest value without synergies is $47.10 with a growth of 1% and a WACC of 9% and a highest share price of $95.58 with a growth of 3% and a WACC of 7%.
If we now look at the

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