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The family, owners of one-third of the Philadelphia chemical giant, wanted out. Gupta said that about 45 members of the extended Haas family had been told by financial advisers to diversify their assets.
Gupta thought he could keep Rohm & Haas - which employs thousands in the region and has been one of the most stable corporate fixtures in the city for decades - from being sold, like so many other Philadelphia companies, to an outside conglomerate.
He proposed buying the Haas family stakes over several years. This would have cost Rohm & Haas billions of dollars, yet an arrangement with the family was reached in early June.
The plan didn't hold. Several major chemical companies heard Rohm & Haas was in play, so instead, Gupta had to privately auction the company.
In rapid-fire fashion, Dow Chemical Co. won against Germany's BASF, another chemical giant. Dow's huge 74 percent premium shocked Wall Street and stunned Rohm & Haas employees who arrived for work yesterday without a clue. Boards of both companies have approved the $78-a-share cash deal that values Rohm & Haas at $18.8 billion, with debt. The transaction is expected to close in January 2009.
Financing comes from several sources. Among them: Warren Buffett's Berkshire Hathaway Inc., and the Kuwait Investment Authority, the country's $250 billion investment fund. Experts say Buffett and the Kuwait fund were most likely brought into the deal because they had cash and were willing to take the risk, unlike an investment bank under pressure from the credit crisis.
Dow has agreed to pay $750 million as a termination fee to Rohm & Haas if it scuttles the deal. Rohm & Haas will pay Dow $600 million if it backs out, according to a regulatory filing yesterday. Rohm & Haas gets to nominate two directors to Dow's board.
An exuberant Dow Chemical chief executive Andrew N. Liveris said he paid a "full price" for Rohm & Haas because he considered it "beachfront property" and a "jewel" and because he couldn't pass on the opportunity.
"It didn't happen because Rohm & Haas was distressed," Liveris said, although he noted the economy was weakening quickly.
Liveris said that he intended to preserve the Rohm & Haas culture and operations in Philadelphia, but that some backroom-office functions could be consolidated with Dow's.
Gupta and No. 2 executive Pierre Brondeau said that they did not see major employee cutbacks in Philadelphia and that the Rohm & Haas brand would remain viable inside Dow. They said Rohm & Haas would operate as Dow's $13 billion specialty-chemicals business. The company now employs 3,100 in the region and 15,700 around the world.
Being part of Dow will give Rohm & Haas access to raw materials it would have to buy on the open market and will give it economies of scale in other purchases, they said.
"It's a good thing for Philadelphia and a good thing for Rohm & Haas at the end of the day," said Gupta, 62, who has been chief executive since 1999.
Rohm & Haas manufactures thousands of products and is a major paint-additive supplier to paint companies like Sherwin-Williams and Behr.
Privately, Rohm & Haas employees were expressing reservations. The company has been family-controlled, and there are plans for a big celebration of its 100th anniversary in 2009. In the lobby of the company's Philadelphia headquarters yesterday, one employee greeted a visitor with a wry, "Welcome to Dow."
The weak economy and soaring raw-materials prices played no role in the sale of the company, Gupta said, noting that the Haas family has ridden out other economic cycles.
Last month, Gupta had reported record declines in paint volumes over a three-year period. Homeowners were delaying painting jobs. Rohm & Haas has announced a 925-employee job cutback, mostly in North America, because of the weak paint market. It is closing paint-related chemical plants in Kentucky and California, and Brondeau said those plans wouldn't change.
Last fall, Gupta anticipated $85-a-barrel oil in 2008, but in April he revised that to $120-a-barrel oil. Rohm & Haas has developed a raw-materials price index that would allow the company to raise, or lower, prices each month. Some customers balked at the index, but many accepted it, Rohm & Haas executives have said.
Gupta has a plan in place to boost profit, called Vision 2010, by expanding rapidly overseas in developing markets, such as China, and innovating in its electronic-chemicals division. The company also faces cost cuts in slow-growing North America. Gupta's plan projects profit of $5.50 to $6 a share by 2010, compared with the $3.12 a share in 2007.
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