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.
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“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.