Buffett Puts $3bn Into Dow Chemical's Takeover of Specialist American Rival

Billionaire Warren Buffett's Berkshire Hathaway group is emerging as a leading shareholder in Dow Chemical, after backing the global combine's near-$19bn (£9.6bn) acquisition of a specialty chemical business, Rohm and Haas.

Berkshire Hathaway is providing $3bn towards the financing while the Kuwait Investment Authority is putting up $1bn.

The deal, announced yesterday, marks a key step in the plan of Dow chief executive Andrew Liveris to move into higher-margin, specialty chemicals, which are less cyclical than bulk chemicals, where Dow is among the global leaders.

"The transaction delivers on the promise we have made to our shareholders about transforming our earnings profile to one of high growth and less cyclicality," Liveris said yesterday.

Rohm and Haas makes a range of special chemicals for construction, electronics, paper and water treatment; it had sales of almost $9bn last year. Dow is paying $78 a share, which compares with a closing price of $44.83 on the New York Stock Exchange on Wednesday.

Dow's chief financial officer, Geoffery Merszei, said the quality and reputation of Rohm and Haas' businesses, brands, products and technologies - as well as its workforce - made the premium worth paying.

"While it's hard to put a price on a company's culture and people, this premium recognizes the fact that Rohm and Haas is a highly-coveted asset," he said.

The offer values Rohm and Haas' equity at $15.3bn but also involves taking on $3.5bn of Rohm and Haas debt. Stripping out the debt, the deal is the third largest in the chemicals sector, behind Rhone-Poulenc's 1999 acquisition of Hoescht, and Akzo Nobel's recent $16.3bn purchase of Britain's ICI.

In addition to the funding from Berkshire and Kuwait, through convertible preferred securities, Dow has also arranged $13bn of debt finance through Citigroup, Morgan Stanley and Merrill Lynch. Berkshire's role in the deal is similar to the one it assumed in Mars' $23bn purchase of chewing gum company Wrigley.

Dow plans to pay off part of the debt quickly, using the proceeds from a $9.5bn joint venture with Kuwait Petroleum Corp which was announced last December.

Dow said the deal would be "meaningfully accretive" to earnings in the second year after it closes, and Liveris said Dow had been "appropriately conservative" on the level of earnings that it hoped to generate from the deal. It will create an advanced materials business unit with a revenue of nearly $13bn at Rohm and Haas' headquarters in Philadelphia, where the company was founded 99 years ago by two Germans.

Two Rohm and Haas directors will join Dow's board.