Dow has the right chemistry

Forward thinking helped set the stage for Dow Chemical Co.'s $18.8 billion deal for chemicals company Rohm and Haas Co., announced July 10. Earlier this year, Dow and its advisers started discussing including equity players in a possible acquisition, according to a source. So when Rohm and Haas came to market, Dow was able to pounce in three weeks' time. The outcome: a $78 per share cash offer -- a 78% premium to the Philadelphia target's July 9 close of $44.83 -- with Berkshire Hathaway Inc. and the Kuwait Investment Authority taking $3 billion and $1 billion, respectively, of Dow convertible preferred securities. The $4 billion equity infusion hinges on the deal closing.

Citigroup Inc. is credited with bringing Warren Buffett's Berkshire Hathaway into the fold, though Dow CEO Andrew Liveris developed his own relationship with Buffett in the past few months, the source says. The Kuwait Investment Authority's inclusion was facilitated by Dow's name recognition in the Middle East. In December, the chemicals giant announced plans to establish a joint venture with an arm of Kuwait Petroleum Corp.

Rohm and Haas requested an all-cash deal, says the source. Dow's $18.8 billion bid, which included assumption of $3 billion of Rohm and Haas debt, will be financed with the $4 billion equity investment; $9 billion in proceeds from the Kuwaiti petroleum JV; and debt from Citi, Merrill Lynch & Co. and Morgan Stanley, which all served as financial advisers.

Dow hired Citi and Merrill a few years ago to help explore and analyze strategic options, while Morgan Stanley was brought in this year for the Rohm transaction. From Citi, Michael Klein, Peter Tague and Paul Smith served on the Dow team. At Morgan Stanley Paul Taubman, David Heleniak, Carl Contiguglia, Robert Ottenstein and Brian Healy worked as financial advisers.

For legal counsel, Dow went with Shearman & Sterling LLP, where partner John Marzulli Jr. also advised Dow on its JV with the subsidiary of Kuwait Petroleum. For the Rohm and Haas deal, Marzulli, Scott Petepiece and Joel Klaperman advised on equity financing from Berkshire Hathaway and Kuwait Investment while Ronald Bayer provided counsel on the debt financing. Also on the Shearman crew were Doreen Lilienfeld, Laurence Bambino, Daniel Glazer and Jason Pratt.

Rohm and Haas sought financial advice from Goldman, Sachs & Co., which advised R&H when it sold its agrochemicals business to Dow for about $1 billion in 2001. Goldman took legal advice from its longtime outside counsel, Sullivan & Cromwell LLP, with its team of George Sampas and Ken Myers.

For legal work, R&H chose a new relationship, hiring Wachtell, Lipton, Rosen & Katz "by reputation," according to R&H general counsel Robert Lonergan. Wachtell lawyers on the deal included Daniel Neff, Stephanie Seligman, Nelson Fitts, Jeremy Goldstein and T. Eiko Stange.

The Haas Family Trust, which collectively controls about one-third of R&H outstanding common stock, received financial advice from Lazard's Kenneth Jacobs, Alasdair Nisbet and Jean Greene. A Cravath, Swaine & Moore LLP team that included Richard Hall, Kenneth Halcom, Robin Landis, Marvin Tagaban and Jennifer Sasso offered legal counsel to the trust.

Gibson, Dunn & Crutcher LLP served as counsel to the Kuwait Investment Authority with lawyers Steven Guynn, Jeffrey Trinklein and Dennis Wallace on the job, following up on its work for Kuwait Investment in the $3 billion funding of Kuwait Telecom Co. and its $3 billion investment in Citi as part of a $19 billion equity offering by that bank.