What is Rohm and Haas Worth?
Dow Chemical (DOW) has struggled greatly since the joint venture with the Kuwait government has fallen apart, and the stock is near its 23-year low. Additionally, the stock is down more than 70% since the acquisition of Rohm and Haas (ROH) was announced. Yesterday, Dow was forced to slash its dividend in order to conserve cash to put towards its purchase of Rohm and Haas now without the $9 billion of support from Kuwait. However, the company will only conserve $1 billion a year from the reduced dividend, which is a far cry from the $9 million deficit from what it had expected, and a spokesman for Dow denies that it is because of the ROH deal,
“The decision to reduce the dividend is consistent with conserving capital while preserving our long-term shareholder value.”
Given the massive loss in shareholder value over the last year it is not a surprise to see the dividend cut, and Rohm and Haas has been asking Dow to cut the dividend to a penny in order to help finance the deal, as they sue Dow to compel them to complete the acquisition. As much as we don’t like it, because of the massive amount of wealth lost in these stocks, we can see the argument for why the Kuwait Petrochemical Industries Company got cold feet on the deal. The deal was announced in a very different market climate last summer and it seemed even at that the time Dow was willing to pay quite a high price for Rohm and Haas, offering a premium of almost 66% above the market value.
We believed that ROH was Undervalued at the time of the offer, but the offer price seems too rich for the current environment. Given our research, we think a price closer to the mid-$50’s, a bit below where ROH is trading right now, would have been much more suitable price given the amount of cash and sales ROH is currently generating. This is a sad situation that shows the dangers of overpaying for an acquisition, especially during a downturn. It seems that the Kuwaiti agree as Squawk Box reported on Tuesday,
“The Kuwait investment authority is considering increasing support for the takeover of Rohm & Haas for the terms are adjusted to reflect the economic downturn.”
Ockham Research Staff @ February 13, 2009