Rohm and Haas: Jewel or junk?

Rohm and Haas had been a resistant takeover target for its nearly 100-year history. That is, until recently.

When the financial advisers for the Haas Family Group, which owns about 30 percent of the specialty chemicals company, suggested they diversify their holdings, Rohm and Haas finally went up for sale.

That put the $9 billion company up for grabs and allowed Dow Chemical Co to finally buy their sought-after “jewel.”

The $15.3 billion deal, which will help Dow broaden its product offerings in higher margin markets such as paints, coatings and electronic materials, came together in about three weeks, Dow executives said.

“As many of you are aware, until very recently this company was unavailable,” Dow’s Chief Financial Officer Geoffery Merszei said.

Some analysts questioned whether Dow — which paid a 74 percent premium over Rohm and Haas’s closing price on Wednesday and a 24 premium over its all-time high set last year — paid too much, too fast for an asset that may be losing value.

BB&T Capital Markets analyst Frank Mitsch said:

“We’ve been negative on ROH’s fundamentals for some time now, as its largest feedstock, propylene, has been on a tear (Dow is also short propylene) and its major end market, coatings has been under pressure. We were puzzled last November when ROH put forth some unrealistic growth expectations for 2010, and came to the only rational conclusion that the company was worried about a bid from Dow. Since that time, fundamentals deteriorated further, and given the very high premium being paid (11.3x 2008 EBITDA!), apparently ROH’s management (and the Haas family) felt it was time to sell.”

Still, Dow insists it got a jewel, not junk.

“This is a jewel. You remember me talking about jewels and junk? You remember me saying that we are going to wait for the jewel? There aren’t many jewels out there, this is one of them. The fact that it became available matched Dow’s strategy perfectly,” said Dow Chief Executive Andrew Liveris.