26 January 2009 22:19 [Source: ICIS news]
“We do continue to believe that the most likely scenario is a negotiated compromise of around $50/share [€39/share],” said Oppenheimer analyst Edward Yang in a research note.
That $50 price represents 22 times Yang’s estimated 2009 earnings/share number for Rohm and Haas – in line with Dow’s original offer multiple and “roughly a 100% premium to Rohm and Haas’s stand-alone value”, he added.
Dow had agreed to buy Rohm and Haas for $78/share back in July 2008. Including the assumption of debt, the value of the deal on its original terms was $18.8bn.
However, Dow announced earlier today that it would not close its planned acquisition of Rohm and Haas by 27 January - the date required for closing in the terms of the merger agreement.
“It appears Dow was trying to renegotiate the $78 deal price, and Rohm and Haas was unwilling to lower the price,” said Citi Investment Research analyst PJ Juvekar in a research note.
Yang said: “Rohm and Haas has a very tight merger agreement, but that does not change the math, and pro forma leverage of Dow/Rohm and Haas could look quite frightening depending on how quickly EBITDA [earnings before interest, tax, depreciation and amortization] melts away in 2009.”
While conventional wisdom is that Rohm and Haas holds all the cards, this is oversimplifying things, Yang said. "Once a company puts itself up for sale, there’s no turning back - Rohm and Haas needs this deal to close and could be somewhat flexible,” he added.
Juvekar said: “Although we believe the deal can still close, Dow’s management and board seem unwilling to commit to the previous $78 acquisition price.”
Frank Mitsch, an analyst with BB&T Capital Markets, said: “At this point, it is uncertain as to which news will hit the tape first - whether Dow’s acquisition of Rohm and Haas will in fact go through or if Brett Favre will return to the [New York] Jets next season. We are banking on the latter.”
($1 = €0.77)
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