The 10th of July Dow announced the buying of Rohm & Haas for $18.8 billions. For those of you not familiar with the companies, let’s just say that Dow is a huge chemical company, with annual sales of $54 billions. Rohm & Haas is a smaller player, but it has specialised products, which have a better profit margin.
And those differences are the key to understand this sale. Dow becomes an even bigger company, but also it acquires a business less dependant on massive sales that allows it to diversify its portfolio. The table below shows Dow’s divisions, together with the products managed by each.
Dow's Products and Divisions. Source: Dow's webpage
In the materials area, Dow is well known for selling commodity products. Amongst them, the big classics: PP, PE and PS. To stay alive in the world of commodities, sales have to be huge and a strong distribution network is required. Production capacities are so big that costs are lowered.
On the other hand, such a big company as Dow does not always have the dynamism to generate new ideas, in new markets, with new products. So it buys Rohm & Haas that, as can be seen in the table below, has more specialised and expensive products. Its products are also more expensive to develop and produce, of course. Some of the applications where both companies expect to create synergies are electronic products, coatings and adhesives.
Rohm & Haas Product lines
It all sounds great, but we still have to see what the end result is. Two companies so different amongst each other are sometimes difficult to integrate. Dow has announced that Rohm & Haas is going to work as an independent division, even keeping its name. Two board directors of Rohm & Haas will join Dow’s board, which will then reach 14.
Still to answer is the question of how much this sale will inspire Dow to change its business towards more profitable products.
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