Dow's Bid For Rohm And Haas
Dow’s bid for Rohm and Haas
Corporate Finance
February 23, 2015
Katherinne Ortiz Espinoza
5908590
Stephanie de Waard
6117309
Introduction
In this case the acquiring of Rhom and Haas will be discussed. Dow is an American multinational company who produces commodity chemicals. Their mission is to passionately create innovation for their stakeholders at the intersection of chemistry, biology and physics. As of 2009 it is the third-largest chemical company in the world.
Rhom and Haas is a manufacturer of specialty chemicals for end use markets.
The CEO of Dow, Andrew Liveris wanted to transform Dow from a producer of lowvalue, highly cyclical …show more content…
The method used is DCF-model.
Now the equity value is calculated:
2
Lastly, a sensitivity analysis is performed.
The fair share price is $47,51, this is below $78 bid price. As can be seen in the sensitivity analysis a share price of $78 is not reached after changing the assumptions of
WACC and the growth rate. In our calculation, the premium per share would be $30.49.
This would reflect the synergies gains after the acquisition. So, the question now is, if this is reasonable. It is difficult to predict the true synergy gains for a company. First, it should be noted that Dow could have overvalued the bid price in order to win the auction.
Furthermore, in order to value the synergy gains, you should look at the value of the cost synergies and the value of the growth synergies. The cost synergies can be calculated by looking at how costs can be saved after the acquisition. Growth synergies can be identified by looking at the growth prospect of Dow after the acquisition. In the introduction both synergies are mentioned. The acquisition of Rohm and Haas would have a functional integration, a reduction of costs. This could lead to increasing profit margins and sales, which in turn could lead to increasing market power of Dow.
Corporate Finance
February 23, 2015
Katherinne Ortiz Espinoza
5908590
Stephanie de Waard
6117309
Introduction
In this case the acquiring of Rhom and Haas will be discussed. Dow is an American multinational company who produces commodity chemicals. Their mission is to passionately create innovation for their stakeholders at the intersection of chemistry, biology and physics. As of 2009 it is the third-largest chemical company in the world.
Rhom and Haas is a manufacturer of specialty chemicals for end use markets.
The CEO of Dow, Andrew Liveris wanted to transform Dow from a producer of lowvalue, highly cyclical …show more content…
The method used is DCF-model.
Now the equity value is calculated:
2
Lastly, a sensitivity analysis is performed.
The fair share price is $47,51, this is below $78 bid price. As can be seen in the sensitivity analysis a share price of $78 is not reached after changing the assumptions of
WACC and the growth rate. In our calculation, the premium per share would be $30.49.
This would reflect the synergies gains after the acquisition. So, the question now is, if this is reasonable. It is difficult to predict the true synergy gains for a company. First, it should be noted that Dow could have overvalued the bid price in order to win the auction.
Furthermore, in order to value the synergy gains, you should look at the value of the cost synergies and the value of the growth synergies. The cost synergies can be calculated by looking at how costs can be saved after the acquisition. Growth synergies can be identified by looking at the growth prospect of Dow after the acquisition. In the introduction both synergies are mentioned. The acquisition of Rohm and Haas would have a functional integration, a reduction of costs. This could lead to increasing profit margins and sales, which in turn could lead to increasing market power of Dow.