US firms Dow Chemical and Rohm and Haas will merge in a $15.3 billion deal by the start of April

Dow Chemical has finally agreed to complete the acquisition of specialty materials firm Rohm and Haas in a $15.3 billion (?11 billion) deal after the two firms settled their dispute over the planned merger.

The takeover, which will create the world’s largest advanced materials and specialty chemicals business, was initially agreed in July last year and will now go ahead following a deal that will increase the number of job losses, plant closures and divestments at both companies.

Originally, Dow’s acquisition was to be partly financed by the gains from placing the firm’s polymer and other commodity operations in a joint venture with Kuwait’s state-owned Petrochemical Industries Company (PIC).

PIC pulled out the venture at the end of last year, forcing Dow to search for other ways to finance the costs of a $12.5 billion bridging loan necessary for the acquisition of Rohm and Haas. 

The new takeover agreement follows a lawsuit brought by Rohm and Haas against Dow for failing to complete the acquisition by a deadline of January this year.   A court order (requested by both parties) now demands that the acquisition be completed by 1 April.

Under the agreement, two of the largest shareholders in Rohm and Haas - the Haas Family Trust and the hedgefund Paulson & Co. - will purchase Dow shares worth $2.5 billion, which could be increased to $3 billion. 

Dow has also secured a further $4 billion in equity commitments. Berkshire Hathaway, the investment vehicle headed by financier Warren Buffet, will be investing $3billion, while the remaining $1 billion will come from the Kuwait Investment Authority (KIA), as ’another demonstration of commitment of the State of Kuwait to its ongoing and extensive partnership with Dow’.

To reduce the takeover costs, payment of nearly two thirds of the loan for the acquisition will be extended from one to two years. 

Dow will repay the loan through debt and equity issuance, asset sales and savings of $1.3 billion. Job cuts will be increased from a previously planned 6,500 to 10,000, while 10-15 plants will be closed and six R&D locations consolidated. This comes following earlier efforts by Dow to cut costs, announcing plans to slash 5,000 jobs and halt production at 180 plants in Europe and the US late last year.

The merger will combine the two companies’ strengths, transforming Dow into what it hopes will be a high value, diversified chemicals and materials firm. Dow performance products and advanced materials arm is expected to generate annual sales of around $47 billion, accounting for nearly 70 percent of total sales.

Sean Milmo