Integration key to $18.8bn US Dow deal - analyst

10 July 2008 22:24  [Source: ICIS news]

HOUSTON (ICIS news)--Dow Chemical's $18.8bn (€12bn) offer for Rohm and Haas is so high, integration decisions will be critical to making the acquisition pay off, an analyst said on Thursday.

Dow's offer comes to $78/share, a 74% premium to Wednesday's closing price for Rohm and Haas.

"Cost synergies alone won't make this deal work," said John McNulty, an analyst with Credit Suisse. "Management integration is going to be the central issue."

Dow will need to successfully integrate Rohm and Haas' coatings and electronic-chemicals portfolios, McNulty said. "Integrating these high quality businesses into Dow’s portfolio and culture will take time."

Choosing the right people to run the combined divisions will likely be the most important decision for Dow, he said. At the same time, the companies will need to reduce cyclical volatility.

Rohm and Haas still has substantial exposure to construction, packaging and other cyclical industries, McNulty said.

"Cost synergies are nice, but a significant reduction in overall volatility of revenue and income stream needs to occur for shareowners to benefit," McNulty said.

Credit Suisse downgraded Rohm and Haas to neutral from outperform. The company is maintaining its neutral rating on Dow.

If completed, the acquisition will create the world's largest specialty-chemical company, according to Moody's Investors Services. Combined specialty sales will exceed $30bn, or two-thirds of the company's total.

($1 = €0.64)

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By: Al Greenwood
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