Wiseacre response to title: "All of them? Maybe Crompton will let Lake Erie test the free agent markets."

Crompton Corporation (NYSE:CK) and Great Lakes Chemical (NYSE:GLK) announced today that they have agreed to an all-stock merger between the two companies -- a move that would create the third-largest publicly traded specialty chemicals company in the United States. (Is that enough qualifiers?)

The combined company at this moment would have a market capitalization exceeding $3.2 billion, and it had 2004 revenues of $4.1 billion. Only Rohm & Haas (NYSE:ROH) and Engelhard (NYSE:EC) would be larger.

In a fairly rare occurrence, investors signaled approval for the deal by sending both companies' shares substantially higher, with Great Lakes up more than 20% and Crompton up more than 10% at midday. Generally speaking, you tend to see the acquiring company's shares drop (in this case Crompton) and the acquiree's shares rise to fill the gap in the acquisition premium. Analysts on the companies' joint conference call practically bubbled at the news, with each, in turn, seemingly offering congratulations to top the previous kudos.

These companies do seem to have a very good fit, with no products or markets in competition with one another. Both have some seasonality in their product mixes, with Crompton's strong presence in crop protection additives and Great Lakes' leading market position in pool chemicals and products.

The transaction is uncollared and was friendly in nature, with both companies seeing the potential to wring out operational leverage gains in combination. Under the terms of the deal, Great Lakes shareholders will received a fixed 2.2232 shares in Crompton for every share of Great Lakes they currently hold. A quick look at the box scores shows that, as of midday, the ratio of the two share prices is 2.213, so it's pretty safe to assume that the market rates the chance of this deal taking place as being close to 100%.

Both of these companies produce chemicals that are several steps away from most consumers, thus, they're not exactly household names. Great Lakes is probably best known among investors because of the large position Berkshire Hathaway (NYSE:BRKA) (NYSE:BRKB) held in the company for many years.

The companies expect that the combination will yield cost savings of $90 million to $100 million per year over the long-term. Crompton/Great Lakes combined holds leading positions in several valuable chemical niches, including petroleum additives, pool chemicals, plastic additives, and crop protection. The companies' first debt reduction target is a $200 million trade accounts receivables securitization at Crompton.

These kinds of businesses are almost tailor made for merger activity. They are not household names, but the chemical business is characterized as being extremely specialized, much like the pharmaceutical arena.

Bill Mann owns shares of Berkshire Hathaway. For a complete list of holdings, please consult his profile. The Fool has a disclosure policy.