Dows Bid for Rohm and

Haas
Case Analysis by Nithin Geereddy
Investment Banking Harvard University Fall 2013

1) Introduction
The case presents an American company Dow, producer of commodity
chemicals, who is in the final stages of acquiring another company Rohm and
Haas.

Dows CEO has been working for four years to transform Dow from a

producer of low-value, highly cyclical commodity chemicals to a producer of highvalue, specialty chemicals and advanced materials. Rohm is a perfect match for
Dow in respect of the strategic and financial perspective. Dow is also pursuing
another key deal with Kuwaits Petrochemical Industries Company (PIC) that was
supposed to generate $7 billion cash net of tax which could be used to finance
acquisition of specialty chemical maker Rohm & Haas for $18.8 billion all cash deal.
However, by late 2008, a sever financial crisis gripped the US markets, causing a
substantial decline in asset values. This financial crisis stretched across the entire
globe, and the Kuwait based PIC terminated the joint venture with Dow in
December 2008. To make matters worse, Dow reported a fourth quarter loss of
$1.6 billion. Due to deteriorating market conditions and the credit market freezing
up, Dow attempted to back out of its acquisition of Rohm & Haas. In response,
Rohm & Haas approached the court to force Dow to complete the the terms of their
deal.

2) Why does Dow want to acquire Rohm and Haas?

Rohm and Haas would be a strong operational and strategic fit for Dow. This
acquisition would bring synergies as well as benefits in products and technologies,
broad geographic reach, and strong industry channels. Andrew Liveris described
the deal as a jewel that matched Dows strategy perectly.

Rohm & Haas

presence in the global market will provide Dow with an expanded network into
emerging markets, producing important sources of revenues, while the synergies
would create an outstanding business portfolio with diversified products and
significant growth opportunities. Rohm & Haas is also backed by a strong and
experienced leadership team with a culture of customer focus and innovation. In
light of Dow trying to transform their production line beyond the low-value, highly

cyclical commodity chemicals, Rohm & Haass portfolio of specialty chemicals and
advanced materials made it a tempting acquisition.

3) Valuation using the Original Forecast:

Weighted Average Cost of Capital (WACC)
For the purpose of discounting cash flows to determine the present value of cash
flows, we have calculated WACC. Using the long-term sustainable tax rates (35%)
and debt level (D/V=28%), the WACC is 8.5% as shown in Exhibit 7b.

Using short-

term tax rates (26%) and debt level (D/V=49%), the WACC would be 7.44% as
shown below.

Weighted Average Cost of Capital

(WACC)
Using Short-term Metrics
Calculation As per data
Risk-free Rate (Rf)
Equity Beta (bE)
Equity Risk Premium
(ERP)
Cost of Equity (KE)
Tax Rate
Cost of Debt (KD)
Debt / Value Ratio
(D/V)
Equity / Value Ratio
(E/V)
WACC =

4.92%
1.06
5.07%
10.29%
26%
6.10%
49%
51%

Exhibit 7b
Exhibit 7b
Exhibit 7b
Exhibit
Exhibit
Exhibit
Exhibit

7b
7a
7b
2

Exhibit 2

7.44%

Table 1: WACC Calculations based on Short Term Metrics

We believe the WACC based on the long-term sustainable ratios (8.5%) is a

more realistic discount rate.
All figures are in millions except for price per share figures.

Rohm & Haas Stand-Alone Valuation (Original FCF forecast)

Exhibit 7a provides the projected cash flows for the years 2009-2012, as shown in
the table below

Table 2: Project Free Cash Flows (Original Forecast)

Using the given WACC of 8.5 and a growth rate of 2% we calculated an Enterprise
value of $12,370.
The value of equity is the Enterprise Value (EV) less the value of the Net Debt. Net
Debt is defined as follows:

Table 3: Net debt Calculations

We found that the equity value of Rohm & Haas to be $9,059 and dividing this
value by the Rohm and Haas shares outstanding yields a value of $46.41 per
Rohm and Haas share. This value is just slightly higher than what Rohm and
Haas was trading at the day before the deal was announced.

Perform a sensitivity analysis of the equity value per share based on the
inputs to the TV (discount rate and growth rate).
We explore the Equity Values sensitivity to the discount rate as well as to the
projected growth rate.

This sensitity is shown in Table .

Using the baseline

assumptions (WACC=8.5%, growth rate=2%), we arrive at a base equity level

without synergies of $46.41 per share. However, this value is quite sensitive to
both the WACC and growth rates. The overall spectrum of base values ranges from

$27.75/share to $73.42/share, with the baseline assumptions falling squarely in the

middle.

Table 4: Per-Share Equity Value without Syergies

Value of the Cost Synergies

To be able to recognize the cost synergies, Dow had to incur a one time cost of
$1.3 billion spread over two years. Dow also stated that it would take 2 years for
them to fully recoginize the cost synergies. We found that $800 million of cost
synergies would be worth and additional $32.18 per Rohm and Haas share.

Value of the Growth Synergies

Growth Synergies are estimated to be between $2B and $2.6B based on expanded
market porfolios, increased geographic reach and innovative technologies. We
assume that these Growth Synergies would also take two years to completely
recognize. The equity value per Rohm and Haas share is stated in the table below
to view the difference between $2B and $2.6B:

Syn/Share

Sensitivity Analysis
$
$
$
2,000
2,300
2,600
$
$
$
5.90
6.75
7.67

Table 5: Per-Share Equity Value of Growth Synergies

Perform a sensitivity analysis of the equity value per share based on the
variations in the annual cost savings ($500, $800 (pg. 3), $1,000)
Using the equity value per share that we calculated for earlier of $46.41, we added
the growth (used the low end of the $2.0b - $2.6B range) and cost synergies to this
value to come up with a baseline value of $85.27. Adjusting the cost synergies we
calculated an equity value per share of $71.37 to $94.26 per Rohm and Haas
share.

Original
Forecast

$
46.41

500 Cost
Synergies
$
71.37

800 Cost
Synergies
$
85.27

1000 Cost
Synergies
$
94.26

Table 6: Per-Share Equity Value with Synergies

Was the $78 per share bid reasonable?

Using the nominal assumptions of 2% growth rate, and 8.5% discount rate, the
total equity value including $800M in projected cost savings, yields a value of
$85.27 per share.

Using a more conservative $500M in projected cost savings,

yields a value of $71.37 per share.

The $78 per share price falls squarely between the two values based on $500M
and $800M annual cost savings.

Thus, the $78 per share is a reasonbable bid

based on the assumptions made by Dow.

It is worthwhile to note that the cost synergies represent a very significant
percentage of the overall valuation, and thus a more conservative ($500M/year)
savings would be a far more prudent assumption, which yields about $71.37 share.
Dows offer of $78 per share is below the value of base case with synergy effects.
It is to be noted that with synergies, all the sensitivity analyses are above $78,
reflecting that this bid is reasonable Dow would acquire Rohm at a lower value
considering the synergies effect. However, synergies are quite an important factor
to the value of this deal. If there had been no synergies, none of the valuations
(without synergy) cross the barrier of $78. Thus synergies are an important factor
for this deal to be feasible for Dow.

4) Valuation using the Revised Forecast:

Value Rohm and Haas on a stand-alone basis using the Revised FCF forecast.
Using the revised forecasts, the following are the projected cash flows:

Table 7: Revised Cash Flows

Using the revised forcast we calculate an Enterpise Value of $8,879. Subtracting

the Net Debt calculations from table 3, Rohm and Haas has an Equity Value of
$5,568 or $28.53 per share.

Perform a sensitivity analysis of the equity value per share based on the
inputs to the TV (discount rate and growth rate).
We explore the Equity Values sensitivity to the discount rate as well as to the
projected growth rate.

This sensitity is shown in Table .

Using the baseline

assumptions (WACC=8.5%, growth rate=2%), we arrive at a base equity level

without synergies of $28.53 per share. However, this value is quite sensitive to
both the WACC and growth rates. The overall spectrum of base values ranges from
$15.65 per share to $47.31 per share, with the baseline assumptions falling
squarely in the middle.

Table 8: Revised Synsetivity Analysis

Based on the Revised Forecast, value Rohm and Haas based using the
growth and cost synergies from question 2.
Based on the Revised Forcast and using $2B growth synergies and $800M per year
with a one time cost of $1.3B we calculate the value of Rohm and Haas to be
$67.39.

Rev. Forecast Price Per

Share

500 Cost
Synergies
$
53.49

$
28.53

800 Cost
Synergies
$
67.39

1000 Cost
Synergies
$
76.38

Table 9: Revised price with synergies

Value Rohm and Haas based using only 50% of the growth and cost
synergies.
With 50% growth and cost synergies we value Rohm and Haas at $46.05.
Revised Forecast Price Per
Share

$
28.53

Synergies p/share
$
17.52

With Synergies
$
46.05

Table 10: Revised price with 50% of synergies

Considering the onset of the global economic crisis, value Rohm and Haas
based using 0% of the growth synergies and 50% cost synergies.
With 0% growth and 50% Cost Synergies we value Rohm and Haas at $41.90.
Revised Forecast Price Per
Share

$
28.53

Synergies p/share
$
13.38

With Synergies
$
41.90

Table 11: Revised price with 0% growth and 50% cost synergies

What price per share bid would you consider reasonable?

Analysis of the Revised Valuation
To properly determine the correct valution under the new revised condtions, we
need to revisit a number of assumptions:

Risk-free rate (Rf): We believe that 3.5% represents a reasonable value for

the Rf based on the 10-year treasury bills at that time.

WACC: The lower Rf produces a WACC of 7.5% using the same long-term

capital structure and tax rates.

Revised (lower) FCF in the years 2009-2013 as shown in Table
Growth synergies: revised down by 50%
Growth rates: the long term outght not be affected by the 2008 crises.
However, at the time, many analsysts spoke of a new normal with lower

growth rates. Thus, we look at using 1% as the growth rate.

Cost synergies: The credit crunch of 2008 likely produces lower cost
(certainly because of lower borrowing costs) which should result in better
cost savings overall. However, we will continue to use the $800M/year as
the baseline assumption.

Using the above assumptions, we arrive at a value of $68.35/share vs. the

original $87.67/share projected ealier and $78/share which is actual trasaction
value.

Supplamental DCF and Synergies

We figured that to properly calculate the value of the synergies, we would have to
know the combined company WACC and growth rate. Because we were not
provided this information and in the case, we decided to create a suplemental DCF
and synergy model to try and estimate the combined company WAAC and to see
the effects on the value of the synergies. We found a much lower combined
company WACC (6.47%) due to the significant change in the capital structure (66%
debt to 34% Equity). However, for the revised combined company WACC we
wanted to have a higher WACC due to the extreem risk that Dow was taking to go
forward with the merger. We increased the debt premium because of the looming
credit rating down grade that S&P was threatening to do, we increased the beta
slightly, and we at a default risk premium due to the fact that they were financing

a very large portion of their deal with a bridge loan. This lead us to a WACC of
11.76% and we lowered our growth rate to 1.5%.
Results:
The lower WACC increased synergy values of the deal thus boosting the overall
price per share value of Rohm and Haas, with a range of $80.96 to $113.38 per
share.

Orig.
Forecast

500 Cost Synergies

800 Cost Synergies

1000 Cost Synergies

$
80.96

$
100.47

$
113.38

$46.4
1

However, with the higher WACC used in the revised synergies, the overall price per
share dropped to $44.93 to $59.53 per share.

Revised
Forecast

$28.5
3

500 Cost
Synergies

800 Cost Synergies

1000 Cost Synergies

$
44.93

$
53.77

$
59.53

5) Analyze the various provisions in Exhibit 4:

The following shows the risks associated with this deal, the provisions which
prevent the aforementioned risks, the party favored by each provision, and the
party holding the prime responsibility to address these risks.
1. Risk of delay or non-performance:
Closing
Date

1.2: The second business day after the satisfaction or

waiver of all antitrust concerns and of all other
conditions of the merger.

Ticking Fee
2.1a: In the event the merger does not close by
January 10, 2009, the per share consideration shall
increase using 8% simple interest per annum until the
deal closes.

Enforcemen 8.5: The parties agree that irreparable damage would

t
and occur in the event that any of the provisions of this
Jurisdiction
agreement were not performed in accordance with their
specific terms or were otherwise breached It is
accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches or
threatened breaches of this agreement and to enforce
specifically the terms and provisions of this Agreement
exclusively in the Delaware Court of Chancery
(Specific Performance)
Termination
Fees

7.2a & d: If Rohm terminates this agreement after

accepting a superior merger proposal, then Rohm shall
pay Dow $600 million in cash (termination fee). If
this merger has not occurred by October 10, 2009,
unless there has been an injunction prohibiting the
consummation of the merger for antitrust reasons, then
Dow shall pay Rohm $750 million (reverse
termination fee).

The risk of delay is mitigated by stating explicitly the closing date in the
agreement and specifying a ticking fee for any delay beyond the date specified.
Non-performance is addressed by Specific Performance, with any potential
breaches of agreement to be prevented with injunctions granted by the Delaware
court.
These provisions primarily favor Rohm but allow for damages to be granted to both
parties (termination fee and reverse termination fee) in the case of nonperformance.
Responsibility is primarily allocated to Dow, but both parties are subject to financial
penalties should the deal not occur.
2. Risk of governing body unfamiliarity:
Governing
Law

8.4: This agreement shall be governed by the laws of

the state of Delaware.

This risk of governing body unfamiliarity addresses the risk of the case being
discussed in a jurisdiction alien to one or both entities. Explicit statement of the
applicable fiscal and legal policies affecting the deal allows both parties to predict
and mitigate any potential material expenses or changes.
This provision is set to protect and allocate responsibility equally to both parties.

3. Risk of deal nullification on the basis of certain circumstances unforeseeable by

Rohm:
Material
Adverse
Effect (MAE
clause)

3.1: A Material Adverse Effect means such state of

facts, circumstances, event, or change that has had a
material adverse effect on the business, operations or
financial condition of Rohm, but shall not include: a)
events or changes generally affecting the specialty
chemical industry or generally affecting the economy
or the financial, debt, credit or securities markets; b)
any decline in Rohms stock price or any failure to
meet internal or published projections. [Note: The MAE
clause is also known as a Material Adverse Change or
MAC clause.]

Certain macroeconomic or capital market forces, which are not under the control of
Rohm, may negatively affect Rohms performance and cause Dow to terminate the
deal. However, these factors are applicable to the general industry and may not
be considered as grounds for termination of the agreement.
This provision favors Rohm and holds Dow responsible to act in accordance with
the terms of the agreement.
4. Risk that the transaction may lack proper valuation and substance:
Fairness
Opinion

3.17: Rohms Board of Directors has received the

opinion of Goldman, Sachs & Co. to the effect that the
consideration is fair to the Rohm shareholders from a
financial point of view.

An incorrect valuation of Rohms financial position will negatively affect the

interests of all stakeholders.
This provision protects Rohm, Dow, and stakeholders in both companies. The
responsibility is attributed to Goldman, Sachs & Co. to consider the valuations
fairness from a financial perspective.
5. Risk of competitive bidding, involving other buyers:
No
Solicitation

5.3: Rohm agrees not to solicit, initiate, or

knowingly encourage any proposal or offer that

constitutes an alternative (merger) proposal.

[Known as no talk or no shop clauses.]
This provision primarily protects Dows interests in the acquisition with Rohm and
prevents additional parties from entering the bidding process while holding Rohm
responsible in the event of any bid solicitation.
6. Risk of unintentional delay or non-performance:
Reasonable
Best Efforts

5.6: Each of the parties hereto shall use its

reasonable best efforts to take all actions and to do
or assist in doing all things necessary, proper, or
advisable to consummate the merger.

Hell or High 5.6b & e: Dow shall take all such action as may be
Water
necessary to resolve objections, if any, from
Provision
government authorities on antitrust grounds so as to
enable the closing to occur as soon as reasonably
possible including the sale, divestiture, or
disposition of assets, businesses, products, or product
lines Nothing contained in this agreement requires
Dow to take any divestiture action with respect to any
of the assets if these assets represented in excess of
$1.3 billion of revenue for the 12 months ending
December 31, 2007.
This risk is mitigated by the specific provisions requiring best efforts in the attempt
to complete the terms of the agreement.
5.6 favors both parties as well as holds both responsible for taking all necessary
actions in order to complete this deal under the specified terms and by the
contractually specified closing date. 5.6b & e favors Rohm and holds Dow
responsible with respect to any intentional delays in finalizing the acquisition.
7. Additional risks addressed in the conditions for closure:
Closing
Conditions

6.1, 6.2: Conditions to merger:

1) Approval by Rohm and Haass shareholders.
2) Expiration of the waiting period under the HartScott-Rodino Antitrust Act.
3) European Commission declares that the merger
is compatible with the common market.
4) Rohm and Haas has not experienced a Material
Adverse Effect as of the Closing Date.

5) Consummation of the merger is not conditioned

on the receipt of financing by Dow.
Condition 1 addresses the risk of non-approval by shareholders and holds both
Dow and Rohm responsible while favoring shareholders interests.
Condition 2 addresses the risk of non-approval under antitrust law, holds both
parties responsible for compliance with legal precedent, and therefore favors
regulators.
Condition 3 addresses the risk of non-compatibility of the deal with the interests of
European capital and money markets. This condition favors European markets and
authorities while holding both parties responsible.
Condition 4 addresses the risk of a change in circumstances, specifically favors
Dows interests and holds Rohm responsible for any changes within Rohms control
that could materially affect completion of the deal.
Condition 5 addresses the risk of non-performance of Dow on the basis of
financing. This provision favors Rohm and deems financing, or the lack thereof, as
irrelevant to completing the acquisition.
In summary, it is the future Dow that would bear the risk, as the terms have
functionally made this agreement irrevocable, even under adverse conditions.
These provisions have been put in place to mitigate the effects of circumstances
surrounding the transaction and protect the ultimate riskbearers, the shareholders
of Dow and Rohm (excluding the family owners of Rohm).

6) As of early 2009:
What should Andrew Liveris (Dows CEO) ?
In the given scenario, the current economic situation has created a vacuum of
liquidity in the financial markets. Simultaneously, the termination of the PIC deal
also put Dow dow in a position of not having adicuate funding for this deal. There
are three options presented within this case:
1) Deal is completed at $78 per share either through voluntary acceptance
from Dow or Dow is forced to do so through litigation.
2) Terminate the deal through litigation, or
3) Renegotiate specific terms.
To close deal at $78, Dow needs to raise cash, but it has few options. Permanent
financing is also difficult to obtain in the given scenario of limited liquidity in

capital markets. Cutting dividend would end firms 97-year streak, which the CEO
stated he would not do. And any asset sales would be at forced sale prices. Issuing
equity through a secondary offering would significantly dilute DOWs stock due to
its recent selloff due to the announcement of this deal and overall market
conditions. Dows stock had fallen to $11 per share, and Dows market
capitalization had fallen below Rohms market capitalization ($10.7 billion vs. $10.8
billion). Though Dow may even go for generating some cash via dividend cut, asset
sale and use of existing bridge loan (with one year repayment term), this would
lead to a further downgrade of Dows credit rating, as warned by Moodys, because
there is a strong risk whether Dow could comply with the bridge loans covenants
on cash flows and total leverage ratio.
As per the second option, terminating the deal through litigation would be a very
difficult to a Judge to rule in its favor. The Material Advers Clause clearly states that
changes in the overall marketplace are not covered by this clause: events or
changes generally affecting the specialty chemical industry or generally affecting
the economy or the financial, debt, credit or securities markets. Also, Dow is
required to the Reasonable Best Efforts Clause, an it must do everything that it can
do in its power to complete the deal. Since it is unwilling to suspend its dividend
and/or issue a secondary offering to raise cash, the case could be made that Dow
is not making a Reasonable Best Effort.
Both Rohm and Dow have a final option to delay and renegotiate with each other.
Dow may negotiate with K-Dow (the Kuwaiti entities who terminated their
agreement, as discussed in the introduction) and other lenders. Dow is planning to
sue K-Dow to recover the break up fee from their failed deal. This breakup fee
could be used to fund the deal, or Dow could use this breakup fee as leverage to
renegotiate the deal with K-Dow and hopefully raise more cash. Delaying the deal,
would also allow Dow to renegotiate its bridge loan. Dow may try to extend
maturity of bridge loan, but the cost would likely rise and the banks would have to
be willing to extend the loan. Finally, Dow may also look for other longer-term
financing options or the credit markets may open up with more time.
Therefore, the third option should be considered by Andrew Liveris, as this option
would be prefferable and recommended from the perspective of Dow Chemicals.

What should Raj Gupta (Rohm and Haas CEO) do?

Raj Gupta has a fudiciary duty to the Rohm shareholders and to do what is in their
best interests. At this point, completing the deal at $78 per share is in the best
interest of Rohms shareholders. If the deal were to fall through, Rohms stock price
would plunge below it pre-announcement price of $44.83, because of the drastic
change in market conditions. Therefore Gupta should force Dow to complete this
deal through litigation. Because Rohms current shareholders would not receiving
any Dow stock, Rohm's CEO doesn't have to take into account if Dow can afford the
deal nor the value of Dows stock. He would be doing the right thing by suing Dow
and bringing to light the fact that Dow has many avenues to raise additional
capital and it is not making a Resonable Best Effort. For example, Dow could cut its
dividend or do a secondary offering to raise more cash. Even issuing long term
debt is a possibility, given that other firms were able to raise a record of $167
billion of high-rated corprate bonds in January of 2009, despite the recession. Raj
Gupta also has a compelling case to make, with seller baised and watertight
merger agreement in his companys favour. In the summer of 2008 the Deleware
Court (the same court that would hear the Dow and Rohm and Haas case) heard
the case of Huntsman Corporation vs. Hexion Specialty Chemicals. The court ruled
against the aquirer, Hexion, forcing it to complete the deal it agreed to. Though
Hexion argued that Huntsman had experienced a meterial adverse effect, the court
did not see it the same way and stated that Hexion did not use its resonable best
effort to complete the merger agreement. With the shareholders best interest in
mind and precedent that the Deleware Court would favor the target compnay in
mind, eRaj Gupta should pursue the first option and have the deal completed at
the agreed price of $78 per share.

7) Provide a Current Update.

The buyout of Rohm and Haas was officially completed on April 1, 2009 for
$78 per share plus an additional $0.97 due to the ticking fee. The total value of the
deal was $16.3 billion and to complete the deal the company issued $7 billion in

preferred stock and borrowed $9.23 billion from a short-term loan.

This short-

term loan was one of the keys to getting the deal done and Dow was able to
negotiate extended terms though the interest rate on the loan more than doubles
in its second year. 2 Also, two major Rohm & Haas shareholders agreed to invest
$3 billion in the combined company. 3 That year, Dow announced that it slashed
its dividends by 64% to 15 cents a share and planned to lay off 3,500 workers,
on top of 5,000 already announced by the company. 4 This was the first time the
company had cut its dividends. To pay down some this debt Dow agreed to sell
Rohms profitable unit Morton Salt to K&S AG for $1.576 billion, which was
completed on October 1, 20095. Rohm had purchased Morton Salt in 1999 for $4.6
billion6. Immediately S&P downgraded Dows credit rating to BBB-, to one step
above junk, due to the increase of debt that had to be issued to complete the
merger.

To gain regulatory approval from the US Federal Trade Commission (FTC),

Dow was required to sell certain acrylic monomer and specialty latex assets, and
these transactions were completed on January 25, 2010 8. On May 6th, 2009, Dow
announced that it would issue a public offering of $2.25 billion in common stock of
130 million shares priced at $15 per share. 9 Dow also annouced that it would
1 http://online.wsj.com/news/articles/SB123860746676278981
2 Ibid.
3 Ibid.
4 http://online.wsj.com/news/articles/SB123663915248676941
5 Dow Chemical 2010 10-K
6 Dows Bid for Rohm and Haas
7 http://online.wsj.com/news/articles/SB123860746676278981
8 Dow Chemical 2011 10-K
9

http://www.prnewswire.com/news-releases/dow-prices-oversubscribed-public-

common-stock-offering-retires-significant-portion-of-perpetual-preferred-shares61782112.html

retire preffered shares used for its recent buyout of Rohm & Haas, a move that will
save it millions in dividend payments and offered $6 billion in debt securities for
which Fitch gave a BBB rating.10
Originally, Dow believed that the post-merger company would be able to generate
$2.0 to $2.6 billion in additional value and achieve at least $800 million of cost
synergies. 11 However, when Dow announced the deal on April 1, 2009, it believed
that the merged companies would be able to achieve $3.0 billion in additional
value growth opportunities, as well as annual cost synergies of $1.3 billion. 12 The
integration of Rohm appears to be very successful and was completed in Quarter 1
of 2011.

According to Dow it achieved its synergy targets related to the

acquisition a full quarter ahead of schedule, with realized savings of $1.4 billion
including increased purchasing power for raw materials; manufacturing and supply
chain work process improvements; and the elimination of redundant corporate
overhead for shared services and governance13.
Dow has been able to pay off the short-term loan that it required to complete the
merger. In 2009 Dow had short-term debt of $2.12 billion and as of the end of 2012
it had paid this down to $396 million 14. Dows long-term debt has remained around
$19 billion since. Dow has been successful in increasing its Gross Margin from
12.76% in 2009 to 15.84% in 2012. Dows EBIT and EBITDA margins were
improving until 2012 when the company had a pre-tax restructuring charge of
$1.343 billion.
DOW
Net Sales

2012
5678

2011
5998

2010
5367

2009
4487

10
http://seattletimes.com/html/businesstechnology/2009195920_apusdowchemicalo
ffering.html
11 Dows Bid for Rohm and Haas
12 http://www.dow.com/greaterchina/en/news/2009/20090401a.htm
13 Dow Chemical 2011 10-K
14 Dow Chemical 2009 and 2012 10-K

6
4779
2

COGS
Gross
Profit
8994
Gross
15.84
Margin
%
EBIT
2934
EBIT
5.17
Margin
%
EBITDA
5632
EBITDA
9.92
Margin
%
All figures are from
in millions

5
5102
9

4
4578
0

5
3914
8

8956 7894 5727

14.93 14.71 12.76
%
%
%
4942 4275 2040
8.24
7.96
4.55
%
%
%
7825 7237 4867
13.04 13.48 10.85
%
%
%
Dow's 10-Ks and are

Dow announced on December 2, 2013 that it is in the process of carving out some
of its low margin businesses to hopefully sell in the future. This is a part of Dows
plan to divest low margin businesses over the next 18 to 24 months producing $3 $4 billion in proceeds. 15 None of the assets that are being carved out were a part
of the Rohm and Haas merger.
Finally, Dow has seen its stock price rebound since the merger. Dow hit a closing
low of $6.33 in March of 2009, and as of November 29, 2013 its stock price closed
at $39.06, which is an increase of 517%.

15 http://www.dow.com/news/press-releases/article/?id=6380