Dow Chemicals' (DOW) acquisition of Rohm & Haas (ROH) in 2008: For this entire question use only the information given herein. Assume that the value of synergies is $5 billion. Disregard personal taxes. DOW has 936 million shares outstanding and ROH has 195.2 million shares outstanding. The pre-merger stock prices of DOW and ROH were $33.96 and $44.83 respectively.

A. If DOW pays cash $78 per share for each of the 195.2 million shares of ROH, what is the distribution of the synergy between the original stock holders of DOW and the stock holders of ROH?

B. Now assume that DOW announces the offer to purchase ROH for $78 cash per ROH share. The post-announcement stock price of DOW and ROH is $32.52 and $73.62 respectively. Assuming that the final outcome of the offer will be known in 1 year and the one-year interest rate is 3%. What would be the strategy of a merger 'arbitrager' who believes that the deal will eventually be completed successfully as proposed?

C. Suppose that instead of cash, the offer is an all-stock offer with an exchange ratio is 2.50-for-1 and that the post-announcement market reaction is still the same as in (b) above. What would be the strategy of a merger 'arbitrager' who believes that the deal will eventually be completed successfully as proposed?

Answer rating: 100% (QA)

A If DOW pays cash 78 per share for each of the 1952 million shares of ROH what is the distribution of the synergy between the original stock holders of DOW and the stock holders of ROH Answer Total B... View the full answer