Case Study: Dows Bid for Rohm and Haas

Evaluate the courses of action for the major players in early February 2009. (a) How should Judge Chandler resolve this legal dispute? (b) Should ROHs CEO Raj Gupta push for closure or renegotiate the deal? (c) What should Dows CEO Andrew Liveris do (in light of the likely responses of Raj Gupta and Judge Chandler)? Should he complete the deal at the $78 per share price, or renegotiate some of the deal terms (which ones?), or litigate to terminate the deal?

the following additional assumptions/instructions in your analysis:

Treat the end of FY 2008 as date 0 for valuation purposes.

The WACC computation in Exhibit 7B is based on a tax rate of 35%. You should recompute WACC based on ROHs effective tax rate of 26% (see Exhibit 7A).

The pre-tax cost savings from the merger are as follows: $400 million in 2009, $600 million in 2010, $800 million in 2011, and a perpetual growth rate of 2% per year beyond 2011.

The case mentions a cost of $1.3 billion to achieve the cost synergies. Assume that this is split equally over 2008 and 2009.

Merged entity has the same unlevered cost of capital (ru) as ROH, and an effective tax rate of 35%. Ignore interest tax shields generated by the new debt issuance and assume that these are canceled out by increase in expected distress costs.

Assume that the value of growth synergies is $2.3 billion (this is the average of the $2-$2.6 billion range mentioned in the case study).