MSc Finance, MSc Finance and Accounting Summer 2017

Mergers and Acquisitions

Group Assignment 1 -
Dows Bid for Rohm and Haas
Maximum total word count: 3000 words.

Submission deadline: end of week 4 (5 pm on Friday 12 May). As you will receive another
assignment on Thursday 11 May due a week later, the sooner you finish this one, the more time
for the next one.

Please note that short and to-the-point answers can be considered to be of a higher quality than
long rambling ones. (I.e., it is possible to achieve a high mark without reaching the maximum
word count.)

Please answer the following questions:

1. (10%) Why does Dow want to buy Rohm and Hass?

- Discuss the economic motivations for the deal, i.e. different types of synergies such
as operating (cost, growth, revenue etc) and financial.
- Which of these synergies are valuable? Which are most likely to be realized? Which
can be realized only through an acquisition?

2. (25%) How much is Rohm worth? Carefully explain how you calculate
- The value as a standalone company
- The value of any type of synergies

3. (20%) Examine the following main areas of concern for the two parties, bidder and
target, regarding the deal, i.e. consider the deal or legal risks, and discuss how and to
whom the merger agreement allocates these key risks.
- Deal value
- Deal completion
- Enforcement

Hint: analyse the provisions in case Exhibit 4. What risk does each provision address
and which party ultimately bears the risk (bidder or target)?

--- continues on next page

4. (25%) Consider the following events related to the financial crisis and its impact on the
deal:

Macroeconomic Events Impact on Dow / Rohm Deal:

US Housing crisis: 2006 2008
Financial crisis: autumn 2008
- Capital markets freeze
Global recession: 2008 09
Chemical firms go bankrupt
- Lyondell-Basell, Tronox and Foamex
Bridge loan banks suffer
- Lose 50% of their market cap
- Citigroup bailout
- Merrill Lynch sold to BofA
- - Idle 180 plants, shut 20 facilities
Oil falls: from $147 to $44 / barrel
Dow lost $1.6 bn in 4Q of 2008
- Year-on-year sales down 23%
- Operating rate falls: 87% - 44%
- Utilization is at 25-year low
- Stock price is down 75%
- S&P debt rating cut to BBB-
KPC/PIC cancels K-Dow deal
- Dow wont get $7 bn of cash
Dow restructures
- Fires 5,000 people (11% of total)
Rohm is worth more than Dow

- Carefully explain the revised valuation of Rohm on a standalone basis. What is your view on
the expected value of potential synergies? Explain.
- Compare to the original valuation.
- Under what conditions regarding realisation of synergies and growth rate is the deal likely to
have a positive net present value for Dow?
5. (20%) Discuss the arguments for and against each of the 3 options available to Dow:
1) Close the deal at $78 a share
2) Renegotiate the deal with Rohm
3) Litigate to terminate the deal.