Dow’s bid for Rohm and Haas Harvard Case Solution & Analysis

Introduction

The case is about Dow Company which is famous for producing commodity chemicals.The companyis considering acquiring Room and Haas and itis also pursuing another key deal with Kuwait’s Petrochemical Industries Company (PIC) that is supposed to generate $7 billion cash net of tax which could be used to finance acquisition of Rohm & Haas for $18.8 billion.

However,before the both deals proceed a major financial crisis hit the US financial and Capital market in the end of year 2008 and due to this major financial crisis, the value of the each company declined significantly. Due to this major financial crisis, PIC cancelled the joint venture deal with the Dow which affected the company significantly and it incurred the loss of 1.6 billion dollar in the year 2008.

The financial crisis hit the global economy and resulted in the bankruptcy of investment banks and financial institutions also. Due to this,Dow tried to cancel the expected acquisition of Rohm & Haas.

Dow want to buy Rohm and Haas

Dow’s CEO has been working for four years to transform the company’s strategic goals of being a high quality producer of special chemicals from low quality producer. Dow also wants to be an asset light producer of commodity chemicals. According to the strategic needs of the company, the desired acquisition seems to be a perfect match aligned with the strategic fit.

It is expected that Rohm and Hass is the excellent producer of special chemicals and advanced materials. The management of Rohm and Hass has excellent skills with respect to the dynamics of the business.Also, Rohm and Hass’ leadership team is also brilliant with the great skills of the leadership being customer focus and entrepreneurial behavior among the industry.

 These unique characteristics of the leadership team of the Rohm and Hass, entrepreneurial and innovative culture of the organization, strong market presence with the high quality production of chemicals, diversified portfolio and expanding network in emerging markets and international presence of the company with good image make Rohm and Hass a perfect match for Dow with respect to its strategic needs.

It is expected that the management of Dow can enhance their skills by working with the management and leadership team of the Rohm and Hass.Itis expected that diversified portfolio of the targeted company could explore new ways of growth for Dow.High quality production of Rohm and Hass can also enhance the quality of the chemicals of Dow.It is also expected that the combination of both companies could create cost and benefit synergies for both companies, which will ultimately create value in the wealth of shareholders of both companies.

 Therefore, Rohm and Hass is a strong operational and strategic fit for Dow in order to growth in opportunities of the strategic and financial perspective.

 Rohm and Hass Worth

The value of Rohm and Hass is calculated on the basis of free cash flows.The projected after tax free cash flows a red is counted at the rate of 8.52%. The cost of capital 8.52% is calculated by using capital asset pricing model and case data. In order to accommodate the future benefits, terminal value is also calculated by using the free cash flows of the year 2012, incorporating the future estimated growth of 2% and discount factor of 8.52%.

The net present value is calculated by using the free cash flows and terminal value, by discounting these values at the rate of 8.52% and it generates positive net present value of 11537 million dollars. The net worth of the company is calculated by deducting the debt value from the net present value.

 The value of debt is calculated by adding the short term debt, long term debt and minority interest and then subtracting the cash in hand from the value of the debt. It gives value of the $8266 million and by dividing this value with the outstanding shares of Rohm and Hass, value per share is identified, which is $42.47 per share.

This value is calculated on the basis of forecasted data before any acquisition, therefore it gives the stand alone value of the Rohm and Hass. The value of the company is also calculated after the financial crisis and the five year’s projections are being made on the basis of changes that occurred due to the severe financial crisis................

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