Dow buys Rohm & Haas

Dow july08.jpg

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.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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2 Responses to Dow buys Rohm & Haas

  1. Will Beacham 14 July, 2008 at 2:34 pm #

    I wonder if the use of soverign wealth funds for chemical transactions will grow as the financial markets continue to dry up?

  2. Arisara Suthasut 20 July, 2008 at 4:52 am #

    It looks like that Dow select to go both way upstream/feedstock and specialties/solution provider.

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