Dow Chemical to Buy Rohm & Haas

The Dow Chemical Co. will complete its takeover of Rohm & Haas next month in a legal settlement that provides Dow with up to $3 billion in new cash, the companies said on March 9.

Dow Chemical, the largest U.S. chemical maker, is to acquire Rohm & Haas for the price originally announced in July, $78 a share, which values the specialty chemicals maker at $18 billion. But the settlement effectively lowers the price tag after Rohm & Haas agreed that its two largest shareholders would inject at least $2.5 billion into the struggling Dow.

The deal will cost more jobs than initially announced, with a 3,500 headcount reduction announced on March 9, in addition to the 6,500 previously announced by the two firms: 5,000 for Dow and 1,500 for Rohm & Haas.

Dow said the merger would generate at least $900 million in savings that could reach $1.3 billion. A salary freeze was expected to generate $200 million and spending will be cut more than half from 2008 levels, to $1.1 billion from $2.3 billion.

"Today's agreement resolves the litigation initiated by Rohm & Haas against Dow on January 26, 2009 with a resolution that is beneficial for each party," the companies said in a joint statement. Rohm & Haas filed suit against Dow after the chemical giant said it was unable to proceed with the acquisition. Announced in July at more than $18 billion,the takeover deal hit turbulence after Kuwait's state-owned Petrochemicals Industries in December scrapped a joint venture with Dow that would have netted the firm $7.5 billion, citing unfavorable economic conditions due to the global financial crisis.

Under the terms of the settlement deal, the two largest shareholders in Rohm & Haas have agreed to inject up to $3 billion into tDow by buying preferred and convertible stocks. "The settlement agreement involves a new substantial equity investment in Dow of $2.5 billion and at Dow's option an additional $500 million of equity, at the closing of the merger by the two largest shareholders of Rohm & Haas," the companies said.

The statement identified Haas Family Trusts, the company's founding family, as one of the shareholders. The second shareholder is the Paulson hedge fund. Billionaire Warren Buffett's holding firm Berkshire Hathaway is to invest $3 billion into Dow and Kuwaiti holding KIA will invest an additional $1 billion.The other shareholders were to receive "the original cash consideration."

To help finance the deal, Dow plans to raise some $4 billion in asset sales, in particular its 45% stake in a Dutch refinery operated jointly with French company Total. Dow also intends to sell certain petrochemical businesses in Southeast Asia as well as its salt business, Morton Salt.