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As Lenders Struggle, Buffett Becomes M&A Financier

Finding Dulcinea July 15, 2008

Posted by Anne Szustek to FindingDulcinea

The $18.8 billion purchase of Rohm & Haas is indicative of Dow Chemical—and Berkshire Hathaway’s—strategies to develop a competitive advantage.

Dow Chemical agreed July 10 to take over the specialty chemical firm at a 74 percent premium over the previous day’s closing share price.

Pushing the transaction along was conglomerate Berkshire Hathaway, which is to become the chemical titan’s largest shareholder after putting $3 billion toward the Rohm & Haas buyout. In addition, sovereign wealth fund Kuwait Investment Authority put in $1 billion.

Dow CEO Andrew Liveris said on CNBC that as early as May, Berkshire chief Warren Buffett saw in Dow stock “more value there than what the current price indicated.”And BloggingStocks’ Tom Taulli writes that Buffett’s move “is evidence that the smart money sees lots of value from mergers and acquisition deals.”

Buffett’s backing of Dow is the latest deal to tap into the Berkshire Hathaway wellspring. In April, the conglomerate lent $4.4 billion in debt financing to Mars for its $23 billion purchase of Wm. Wrigley Jr. Co, as well as buying a $2.1 billion minority stake in the chewing gum giant.

“Buffett favors companies that have a competitive advantage, offering products or services that can’t easily be replicated by rivals,” writes Money Morning. The deal between Mars and Wrigley, both name-brand candy companies, “fits the bill”—and is roughly analogous to the chemical duo of Dow and Rohm & Haas.

The Wrigley takeover “also shows how the debt market has shifted to cause acquirers to back deals with more funds,” writes Mergers Unleashed. Dow Chemical certainly fits into this category as well.