Commentary - 07/10/2008

DowChemical Grabs RohmHaas - Who Really Benefits

This article was published by the Associated Press (AP) July 10th:
Dow Chemical agrees to buy rival Rohm and Haas

Dow Chemical Co. has taken a big step into a more lucrative segment of the chemical-making business, agreeing to buy a nearly century-old competitor, Rohm and Haas Co., at a steep premium for more than $15 billion in cash.
Ah, so obviously DowChemical benefits by removing a competitor from the marketplace. That would explain the next paragraph:
A pricing and marketing consultant who follows the chemical industry said the companies' customers shouldn't fret about any immediate price increases.
Would you not think that the key word above is "immediate?" We're not stupid and when competition is removed, options are diminished. So customers' lose, if not today then later.
"Really, truly, a new day has dawned" for Dow, Andrew Liveris, the chemical giant's chairman and chief executive, said Thursday in announcing the $78-per-share deal that includes money from a Kuwaiti sovereign wealth fund and Warren Buffett's Berkshire Hathaway.
So that's where the money's coming from. Oil money and dealings with America's
richest agent. Interesting, because most of the TOP 10 Major Holders are the same in both DowChemical and RohmHaas. This means the Major Holders get a bunch of cash from the sale of RohmHaas and still have shareholdings in the remaining company. Having your cake and eat it too. Very clever.

Since Wachovia is in such big trouble, this is an interesting way of giving them some bucks, too. Notice that they had maneuvered themselves into being the largest shareholder of RolmHaas, with close to 30%. Almost as much as the Haas family.

The purchase price represents a 74 percent premium to Philadelphia-based Rohm and Haas' closing share price of $44.83 on Wednesday. The Haas family, descendants of one of the specialty chemical maker's founders, holds about 65 million shares, a 33 percent stake worth nearly $5.1 billion based on the purchase price.
Obviously the Haas family gets a boatload of money for selling their birthright, but due to the extreme concentration of shares (over 67%) within RohmHaas's TOP 10 Major Holders, it may just have been a deal that they could not refuse.
Geoffery Merszei, Dow's chief financial officer, said the quality and reputation of Rohm and Haas' businesses, brands, products and technologies -- as well as its work force -- make the premium worth paying.

"While it's hard to put a price on a company's culture and people, this premium recognizes the fact that Rohm and Haas is a highly coveted asset," Merszei said Thursday to industry analysts and investors.

That's exactly right, with RolmHaas's customers and employees being the real losers in this deal. The Haas family had a 33% stake in the company and their past decisions were obviously made with all stakeholders in mind. Dow Chemical is simply a banker-owned plantation with 0% insider ownership, with only 1% of the shareholders controlling over 44% of the shares.

I'm predicting real culture shock at RohmHaas soon after the deal finally closes. That's when the plantation manager does what he's told to do in no uncertain terms, no matter how it affects others.

It's so disappointing to see this merger-acquisition binge resulting in more and more well-run corporations becoming just another piece of a bigger plantation, with every drop of blood being drained out and passed on to those who did absolutely none of the work.

But then: Sometimes The Dragon Wins

Symbol Name Of Corporation

Rohm & Haas Co. (As of 31-Mar-2008)
Top 10 Institutional HoldersSharesPct.Value
Wachovia Corp New56,779,75328.97$3,070,649,042
Capital World Investors21,987,30711.22$1,189,073,562
Dodge & Cox Inc13,349,0656.81$721,917,435
JP Morgan Chase & Company8,788,6804.48$475,291,814
Wellington Management Company, LLP8,076,6704.12$436,786,313
Morgan Stanley6,726,9163.43$363,791,617
Barclays Global Investors UK Holdings Ltd5,005,9712.55$270,722,911
State Street Corporation4,407,1382.25$238,338,023
Vanguard Group, Inc. (The)3,768,3421.92$203,791,935
FMR LLC (Fidelity)3,046,0421.55$164,729,951
% of Shares Held by All Insider and 5% Owners:33%
Top 10 [2.7%] of 364 Institutional Holders Control67.30%
Percentage of Barclays and "Associates" Control41.68%
NOTE: Capital Group manages three funds that control 8.26%.
Dodge & Cox manages two funds that control 4.41%.
Therefore, the TOP 10 Major Holders control 79.97% of Rohm-Haas.
Capital Group controls 19.48%.

Symbol Name Of Corporation

Dow Chemical (As of 31-Mar-2008) (As of 30-Jun-2007)
Top 10 Institutional HoldersShares2008Value2007
AXA (Paris, France)74,593,1658.02%$2,748,758,130-.--%
Dodge & Cox Inc60,031,5486.45%$2,212,162,543-.--%
State Street Corporation34,361,3023.69%$1,266,213,978-.--%
Barclays Global Investors UK Holdings Ltd34,010,0633.66%$1,253,270,821-.--%
Vanguard Group, Inc. (The)28,878,4853.10%$1,064,172,172-.--%
Allianz Global Investors of America L.P. (Munich, Germany)25,016,7492.69%$921,867,200-.--%
Capital Research Global Investors18,112,9001.95%$667,460,365-.--%
Brandes Investment Partners L.P.17,839,3221.92%$657,379,015-.--%
Capital World Investors11,780,0001.27%$434,093,000-.--%
Northern Trust Corporation11,525,2341.24%$424,704,872-.--%
% of Shares Held by All Insider and 5% Owners:0%-.--%
Top 10 [1.1%] of 846 Institutional Holders Control33.99%-.--%
Percentage of Barclays and "Associates" Control8.59%-.--%
NOTE: Dodge and Cox manages two funds that control 4.73%.
Capital Group manages three funds that control 3.84%.
Vanguard manages two funds that control 1.63%.
Therefore, the TOP 10 Major Holders control 44.19% of Dow Chemical.
Dodge and Cox control 11.18%.
Capital Group controls 7.06%.

2008 by Edward Ulysses Cate
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