Dow's potential interest in Rohm & Haas had been much rumoured since December, when it announced the petchem/polymer JV with Kuwait's PIC. That deal has yet to close, but further evidence of the growing link with Kuwait comes with the news that the Kuwait Investment Authority will invest $1bn as part of Dow's financing for yesterday's $18.8bn purchase of R&H.
It seems that the high premium paid for R&H (74% over Wednesday's closing price) was due to the presence of BASF as a determined counter-bidder. Dow's analyst presentation, issued following the R&H announcement, therefore takes on added interest as to the rationale for the deal. It provides two insights which have wider implications for the global industry:
• It suggests that the chemical industry of the future will have 2 components. As shown in the above chart, Dow believes a 'Basics' business, growing in line with GDP, now requires feedstock integration - in Dow's case via the PIC JV. Similarly a 'Performance' business now requires a 'solution-orientation' if it is to grow at above GDP rates.
• The 2nd insight comes in a later slide, where Dow gives its view of the timing for the next chemicals cycle. This agrees with the view expressed here last month, as it suggests the 'next industry trough' will be in 2010/11, and that the 'next industry peak' will not occur until 2015.
'Game-changing' is a much over-used word. But Dow's CEO, Andrew Liveris, is certainly right to use it in relation to his deals with PIC and now R&H. Neither are without risk. But those companies currently without either upstream integration, or a strong solution-orientation downstream, must worry that Dow's analysis might prove correct. If it is, then there will be few places for them to hide during the coming downturn.