Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Buffett's Rohming, Too

If you're seeking a quality combination in a volatile market, I think there's a lot to like about Dow Chemical's (NYSE: DOW  ) newly announced acquisition of rival Rohm and Haas (NYSE: ROH  ) .

For starters, there's the -- oh, how I hate this word -- synergistic nature of the pairing. Dow will be able to add the higher-margin specialty chemicals business from Rohm and Haas to its own basic chemicals operations.

Then there's the comfort of knowing that the Oracle of Omaha backed the deal with his company's dough. Warren Buffett, through Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , is funding $3 billion of the combination, in exchange for convertible preferred securities. Once the deal has closed -- probably early next year -- Berkshire Hathaway will be Dow's biggest shareholder.

The deal, which was announced Thursday, isn't cheap. Dow will pay $78 for each of Rohm and Haas' shares, a whopping 74% premium to Rohm's Wednesday closing price of $44.83. That said, it looks like the merger will result in big cost savings, perhaps as much as $800 million a year pre-tax. Rohm and Haas had nearly $9 billion in 2007 revenue, compared to Dow's $54 billion. Among the company's holdings is Morton Salt, so the deal is clearly worth its ... no, I won't go there.

Along with Buffett's backing, the Kuwaiti Investment Authority is chipping in another $1 billion, also in exchange for convertible preferred securities. And amid a credit crunch, it's also somewhat comforting to have a debt commitment from Citigroup (NYSE: C  ) , Merrill Lynch (NYSE: MER  ) , and Morgan Stanley.

With both Dow and its rival chemicals giant DuPont (NYSE: DD  ) having become truly global operations, the deal will provide Dow with new arrows for its expansionary quiver. As for that market volatility consideration: These days, it's good to have a big company like Dow clearly plowing new -- and likely fertile -- ground.

For related Foolishness:

Fool contributor David Lee Smith doesn't have a financial interest in any of the companies mentioned above. He does, however, solicit your questions or comments. Dow Chemical is an Income Investor recommendation, while Berkshire Hathaway is a recommendation of both Stock Advisor and Inside Value. The Motley Fool owns shares of Berkshire Hathaway. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 682354, ~/Articles/ArticleHandler.aspx, 10/25/2016 2:49:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 5 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
BRK-A $215500.00 Down -100.00 -0.05%
Berkshire Hathaway… CAPS Rating: *****
BRK-B $143.83 Up +0.23 +0.16%
Berkshire Hathaway… CAPS Rating: *****
DOW $54.24 Up +0.14 +0.26%
The Dow Chemical C… CAPS Rating: *****
ROH $78.94 Down +0.00 +0.00%
Rohm and Haas CAPS Rating: **
C $49.58 Up +0.01 +0.02%
Citigroup CAPS Rating: ***
DD $70.14 Up +0.44 +0.63%
DuPont CAPS Rating: ****
MER.DL2 $11.64 Down +0.00 +0.00%
Merrill Lynch & Co… CAPS Rating: *