Dow Chemical (DOW) made an offer to acquire Rohm and Haas (ROH) back in July for $15 billion in cash, which is $78 per share. ROH’s share prices tumbled to the low 60s in October, where I picked up some shares. Despite the horrible temporary conditions back in October, the deal still looked solid to me. One, Dow had very few options if it wanted to back out of the deal — Dow would have to pay $750 million if the deal didn’t go through. Two, Dow had sufficient cash to do the deal. Three, Berkshire Hathaway had given financing to Dow.
The most recent setback to the deal is that the Kuwait government has backed out of a joint venture with Dow, a JV that would have provided additional cash to do the ROH deal. On Monday, ROH was in the low 50s. In my opinion the deal has a great chance of going forward. Kuwait backing out on an agreed-upon joint venture is peanuts compared to that horrible first week of October 2008. Comparatively speaking, I think people are overreacting far more this week than they are now. You can see this in ROH’s share price.
I still think that this is a very good risk-arbitrage opportunity. ROH’s price has already risen more than 11% since Monday.
For further reading, see:
Why Dow-Rohm Is No Huntsman-Hexion (Dealbook)
Thoughts on Kuwait Reneging on Dow Chemical JV (ValuePlays)
