Dow Chemical, under pressure from record oil prices, agreed to buy Rohm & Haas for about $15.4 billion in cash to increase sales of more lucrative electronics materials and adhesives in its biggest acquisition ever.
Dow, the biggest U.S. chemical maker, will pay $78 for each Rohm & Haas share, 74 percent more than Wednesday's closing price.
Financing includes equity investments of $3 billion by Warren Buffett's Berkshire Hathaway and $1 billion by the Kuwait Investment Authority, Dow said Thursday in a statement. Berkshire will become Dow's largest shareholder.
Midland, Mich.-based Dow, which raised prices for June and July more than 20 percent, faces a “margin squeeze” as rising oil prices cut profits from sales of polyethylene and Styrofoam, Chief Executive Officer Andrew Liveris said. Rohm & Haas generated 31 percent of its 2007 profit from materials used to make electronics such as computer chips.
“This deal uses up much of Dow's firepower,” Martin Evans, an analyst at JPMorgan Cazenove in London, said in a report. “The premium is high – as is often the case when chemical assets are acquired – and is a necessary part of their transformation away from commodity exposures.”
The purchase also includes the assumption of $3.4 billion of net debt, Dow spokesman Chris Huntley said.
Dow fell $1.44, or 4.2 percent, to $32.52 in New York Stock Exchange composite trading. The shares have declined 18 percent this year. Philadelphia-based Rohm & Haas surged $28.79, or 64 percent, to $73.62.
Rohm & Haas is the world's largest producer of acrylic paint ingredients and also makes chemicals used in adhesives, packaging materials and hair gel. Dow, which had $53.5 billion in sales last year, said the unit that will include Rohm & Haas's business will be run from Philadelphia and have annual revenue of about $13 billion, including some from Dow assets.