It looks like it is safe to put away the shotguns; this marriage is going forward. While it's been a three-ring circus at times, the purchase of Rohm and Haas (NYSE:ROH) by Dow Chemical (NYSE:DOW), a saga that has seemingly lasted nigh onto forever, is over.
The two parties reached an agreement yesterday, following a weekend of intense negotiation. (A lawsuit had been scheduled to go to court yesterday morning.) So now Dow will spend more than $16 billion, or what amounts to the original deal plus penalties, and has created a somewhat complicated financing scheme to pay for it.
The whole thing started off relatively simply. Last year, Dow agreed to a pair of deals: It would team up with Kuwait Petroleum Corp. in a joint venture that would yield it $9 billion in return for the contribution of several of its production facilities. That money would be put toward the $78 a share, Dow had agreed to pay for Rohm and Haas. This was fine, until the Kuwaitis got cold feet and backed out, leaving Dow critically short of capital and putting the deal with Rohm and Haas in tatters.
Until late yesterday that is, when the companies agreed to use $2.5 billion from Rohm's two largest shareholders, along with Dow's take-down of $10 billion of a $12.5 billion line of credit, $3 billion from Warren Buffett's Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), and $4 billion from asset sales including the Morton Salt operation. Additional layoffs are also expected.
For a while it had appeared that other parties might become involved to get the deal done in exchange for a partial stake or outright stake of the agricultural sciences division. For instance Syngenta (NYSE:SYT), a Swiss crop sciences company, was mentioned as a possibility along with U.S. companies DuPont (NYSE:DD) and seed producer Monsanto (NYSE:MON).
All in all this combination almost certainly will benefit Dow in the final analysis. In the shorter term, however, the company's substantial leverage raises concern. On that basis, while the combination could be attractive, my approach will be to give the new company -- which will close the deal by April 1 -- a little space before widening your wallet for share purchases.
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