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Tickers in this Article: DOW, ROH, DD, EMN, CE
Dow Chemical (NYSE:DOW) and Rohm & Haas (NYSE:ROH) seem ready to wed, which is good news for the shareholders of both companies. But, things weren't always so certain. Let's look at the highly publicized courtship, and see what it might mean for investors.

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The Initial Deal
Last July, Dow Chemical agreed to purchase a specialty chemicals company by the name of Rohm & Haas for $78 a share. At the time, there were a number of reasons why purchasing the Philadelphia-based company would benefit Dow. Most beneficial was Rohm & Haas' heavy engagement in non-commodity type products. In addition, a USA Today article from that time indicated that Dow expected "to save $800 million from greater buying power and reduced overhead."

For a time, everything seemed to be progressing smoothly, but other deals forced the two onto a rocky path.

The Chain Reaction
Toward the latter part of December 2008, Kuwait nixed a deal with Dow that would have formed a huge joint venture. This nixed deal complicated Dow's plan to purchase ROH. According to a Reuters article, Dow "had planned to use the proceeds to repay a large part of $13 billion in debt it will have to shoulder once its acquisition of Rohm & Haas closes."

After this revelation, the deal looked like it would be dead by late January 2009. A New York Times DealBook article from that time offered the following: "Dow said in a statement Monday morning that "recent material developments" had introduced "unacceptable" uncertainties in both the financing and the economics of the proposed merger. Among them are the turmoil in the credit markets and the collapse of a proposed joint venture between Dow and a Kuwaiti oil company."

In late January, Rohm & Haas' share price (in the mid $50s at the time) reflected Wall Street's concern that the deal could indeed be dead. Not surprisingly, Rohm & Haas sued Dow.

A Change of Heart?
Late last week it was reported that the two parties were engaged in talks. On Tuesday, it was reported that the two had settled; Dow and Rohm & Haas seem to have worked out their differences. According to a Reuters article: "The companies said Rohm & Haas shareholders will receive just less than $79 a share - $78 per share, plus a ticking fee agreed upon in the original deal. But Rohm's two largest shareholders - the Haas Family Trusts and Paulson & Co - will take up to $3 billion owed them from the deal in the form of preferred equity securities in Dow."

An early April close is expected.

Good News for ROH
This is good news for Rohm & Haas shareholders, because there didn't seem to be any other companies interested in acquiring ROH, especially not for the price Dow was willing to pay. Another piece of good news is that common shareholders (not the two largest) are getting cash which, given the equity market's uncertainty, is a good thing.

For Dow shareholders, I see the merger as a positive. It means that the board and execs can focus on integration and enhancing shareholder value rather than on court proceedings. Down the line, the acquisition of Rohm & Haas and its high margin business could give a boost to earnings. Keep in mind that when the deal was first announced in July 2008, Dow stated in a press release that it expected that the transaction would "be meaningfully accretive to earnings in the second year following completion, with pretax annual cost synergies expected to be at least $800 million per year." That's a very significant amount, and if that still stands, and the deal goes through, I think that analysts will be upping their earnings estimates to reflect that. (Learn how this key metric is calculated and how it is used to judge market performance. Read Earnings Forecasts: A Primer.)

Still, Dow and Rohm & Haas aren't the only two chemical plays that I think deserve attention. In February I penned an upbeat piece on Eastman Chemical (NYSE:EMN). At the time I highlighted both its attractive forward dividend yield and the earnings estimates for 2009, and I still think the company has upside potential. I also think that DuPont (NYSE:DD) has a lot of promise over the long run. It currently trades at about nine times the current year earnings estimate of $2 per share. Texas based Celanese (NYSE:CE) is also interesting, as it trades at about eight times the current year estimate of $1.39 per share.

Bottom Line
I think that the marriage of Dow and Rohm & Haas will prove to be very beneficial. Over the long run, I think that the acquisition will be viewed positively as it has the potential to have a big impact on Dow's bottom line. (Companies use M&As and spinoffs to boost profits - learn how you can do the same in Cashing In On Corporate Restructuring.)

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