How I Did It: Rohm and Haas’s Former CEO on Pulling Off a Sweet Deal in a Down Market

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The IdeaThe sale of Rohm and Haas to the giant Dow Chemical was forged at a premium price in July 2008. The transaction was unconditional. But then the financial markets crashed. Here’s how Rohm and Haas’s CEO kept the deal alive.

Raj Gupta had led the specialty chemical company Rohm and Haas without drama for years when some of its most important shareholders asked him to orchestrate its sale. Surprised but determined to do his best for the company, in July 2008 he arranged an $18 billion deal with competitor Dow Chemical, which the industry press called the “deal of the century.”

But Dow was relying on cash from a planned joint venture of its own with Kuwait Petroleum, and when the stock market plummeted, the joint venture—and Dow’s financing—fell through. Then things got really interesting. Would Dow try to walk away from the deal? Could Rohm and Haas insist that it go through in spite of the unforeseen global meltdown? How airtight was that agreement? Gupta, who learned he had cancer in the midst of all this, had to find a way through the complicated financial and economic issues. In this first-person account he talks about the most difficult deliverable ever asked of him—seeing through the sale of his company as the world economy was collapsing.

The IdeaThe sale of Rohm and Haas to the giant Dow Chemical was forged at a premium price in July 2008. The transaction was unconditional. But then the financial markets crashed. Here’s how Rohm and Haas’s CEO kept the deal alive.

Shortly before Christmas 2008, I left my office at the specialty chemicals company Rohm and Haas for what I thought would be the last time. I had spent much of the year leading up to my long-planned retirement orchestrating the sale of the company—a deal with its former rival Dow Chemical had been forged in July 2008—and there was little left to do but hand over the reins. I had succeeded at one of the hardest goals I’d ever been set: quietly negotiating a friendly sale for $18 billion. All we still needed was the Federal Trade Commission approval that, per our agreement, would trigger the close of the deal within 48 hours. As I drove away from the office on December 18, a colleague called to say that, as planned, my office had been essentially demolished in preparation for its new occupant. My assistant had been reassigned to work with our COO. My work with Rohm and Haas was finished.

But it nagged at me that I hadn’t heard recently from Andrew Liveris, Dow’s chairman and CEO. Market conditions had worsened globally, and the equity and credit markets were in turmoil. Dow had been expecting a large cash influx of $9.5 billion from a proposed joint venture with Kuwait Petroleum. On December 29 Kuwait canceled the venture. But our deal with Dow was unconditional. And then I got the call.

“Raj, you and I need to sit down and go over where we are,” Liveris said. Because I didn’t even have an office at Rohm and Haas anymore, I had to arrange for temporary space at our Philadelphia headquarters—and a temporary assistant. When we met, I learned that Dow saw no way to get the cash it needed elsewhere, given the state of the financial markets and its own deteriorating financial performance.

I organized an emergency conference call to brief the directors on the situation. We believed that our contract with Dow was airtight. Our shareholders had approved the transaction in October by an overwhelming majority. The board and I had a fiduciary responsibility to complete the deal.

I had led the process from the beginning, and the board was very clear that it was my role to see it to an end—one way or another. My personal credibility was on the line.

An Unexpected Request

In November 2007, representatives of the Haas family trusts, which collectively owned 32% of outstanding shares, had asked me to explore disposing of all or most of their holdings at a “full and fair” price within 12 to 18 months. The timing and nature of the request were surprising. Until then the trusts had appeared to be very happy with the level of their ownership and the performance of the company. The board and I, perhaps naively, believed that as long as John C. Haas, the 89-year-old son of the founder, was alive, no such request would be made. We clearly did not read the tea leaves.

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Rohm and Haas had been a quiet but steady business since its founding, in 1909. Our performance had been strong, with an average annual return to shareholders of 13.5% since 1949. For the past 30 years we had increased our dividends by an average of 10% a year. The majority of shares were held by the family trusts, several large institutional shareholders, and employees. I was only the sixth CEO in the company’s history. In my 10 years as CEO, the board hadn’t faced any big, difficult decisions until now.

I took my leadership in the sale very personally, and I was determined to keep the company whole and operating smoothly during this extended period of uncertainty. I spent months exploring options and strategies with the board and our outside advisers. In hindsight, the timing couldn’t have been worse. The economy was starting to weaken, and the request that we sell for all cash at a premium price, though entirely reasonable, limited our options. We identified just three companies as strategic buyers—on the basis of their interest, their ability to finance a transaction of this size, and the likely business synergies: BASF, with headquarters in Germany; Dow, based in Michigan; and DuPont, based in Delaware.

I had layers of concern: What if potential buyers didn’t show up? What if our discreet outreach to potential buyers was inconclusive, just as the economy was rapidly deteriorating? The worst possible outcome, I thought, would be an aborted process; our key stakeholders would doubt our strategy and future at a time when we needed steady support and performance.

Rohm and Haas’s success rested on building relations for the medium to long term. Our position was downstream in the industry value chain; our customers relied on the performance embedded in our science and our commitment to ongoing technology support. Confidence in our future was essential. A mishandled disclosure or rumormongering would cause chaos among our employees and customers and risk destroying the foundations of the enterprise.

I had invested a great deal of time and effort in forming personal relationships with many of my peers—in particular the CEOs of BASF, Dow, and DuPont. The burden was on me to deliver a buyer, so I arranged individual face-to-face meetings with them to plant the seed. I told them we recognized that financial conditions were not as favorable as they could be, but our board supported my outreach. If they wanted to explore this opportunity, they’d have to get back to me swiftly.

The Brewing Deal

Within a week Andrew Liveris called to say he was ready to talk. He came to Philadelphia with an all-cash bid of $74 a share—in the range of value our advisers had suggested. At that time our stock was trading at $52 a share, and the highest it had ever gone was $62. His offer was good for only 48 hours.

The board concluded that it was our fiduciary duty to get in touch with BASF and DuPont to see if they wanted to make an offer. BASF’s CEO, Jürgen Hambrecht, returned my call within 15 minutes. “Raj,” he said, “I was hoping you were calling me to say that this whole process is off, given what’s going on in the world.” But he promised to get back to me quickly, and he did—with an offer of $70 a share, all cash, no conditions except regulatory approval. DuPont, however, let us know that its interest was restricted to only part of our portfolio.

The brewing deal was so secret that I virtually lived a double life for months. Only the board, six people within the company, and a few of our outside advisers knew about it. I was the focal point for all information and decisions. All our meetings were held offsite and during off hours, including many weekends.

Click here for a larger image of the graphic.

We announced the deal with Dow on July 10—at a final price of $78 a share—and I’m sure that every Rohm and Haas employee in the world was in absolute shock. The shareholders were delighted, however, and the industry press called it the “deal of the century.” From July into the fall, the stress of seeing the deal through took its toll on me. We worked hard to keep employees, shareholders, and customers well informed and comfortable about the company’s future. But I was getting e-mails at midnight: “Are you awake?” The answer was always yes, I’m awake. There were 22 board meetings and dozens of phone calls with the directors from the time we first explored the idea of selling the company until the deal closed. I knew it was crucial that I present a calm face to my staff, but I was constantly worried.

In August, totally unexpectedly, I learned that I had prostate cancer, which added a new dimension to my stress. A low point came when I passed out on a flight to Germany and had to be admitted for emergency care. I withdrew from day-to-day operations to focus on my health and had surgery a few months later. My sole responsibility to the company remained seeing the deal through.

When Liveris and I met in January 2009, it was with just one key adviser each. He laid out all his concerns and issues and what he was trying to resolve. I could see that he had a herculean task on his hands. “Andrew,” I said, “I understand what you’re dealing with, but you have to put yourself in my situation. I need something to take to my board. I’d like to tell them that you fully intend to close the deal but you need more time. Give me a deadline, and we can go public with an announcement that this is the situation.” I offered to assist with the Haas family trusts to get some kind of bridge financing. Liveris didn’t want to pursue that. Ultimately, he offered to let us know by June whether Dow could do the deal or not.

On January 23 we got FTC approval for the deal. According to the contract, Dow had just two working days to close the transaction. That was simply not going to happen. Dow’s backup financing lines would expire in June, but I believed that the company had enough resources, given time, to complete the deal under the original terms. Nevertheless, we had to protect our shareholders. With the board’s approval, we filed suit in Delaware, asking the court for an expedited hearing to enforce our contract. Everyone was well aware of the significance of that lawsuit: We were essentially asking the court to decide whether Dow—and implicitly any other company—should be held to the terms of a deal regardless of external conditions. Our court date was set for March 9, and we knew the world would be watching.

Our board sent a letter, which we made public, to Dow’s board, urging it to take control of the situation and honor the contract. Speculation in the financial press was intense: Would the transaction close? If it didn’t, would our share price fall dramatically? Would Dow be forced into bankruptcy or have to sell valuable assets to close the deal?

I spent this period explaining to Rohm and Haas employees why we had to take this drastic action and why it was in their best interests and our customers’ that the deal go through. My energy went into urging employees to stay calm, keeping the board informed, and communicating with key customers, the Haas family trusts, and our large hedge fund shareholders.

On Wednesday, March 4, less than a week before we were set to square off in court, I received an e-mail from Andrew Liveris. “Raj,” he wrote, “should we give this one last try?” We agreed to meet in New York the next day, along with our respective advisers. We also decided that each of us would bring one highly respected board member to help facilitate the process. Our discussion focused on two key points: how to obtain bridge equity sufficient to reduce the debt financing required and how to keep Dow’s credit rating from being downgraded to junk status by Standard & Poor’s and Moody’s.

Dow came up with some creative solutions, including working out arrangements with two of Rohm and Haas’s largest shareholders, the Haas family trusts and Paulson & Co., to obtain the equity financing. And we participated in calls with S&P and Moody’s to persuade them that Dow’s situation warranted “investment grade” status. This was all hastily done in the days before our Monday court appointment. At 8 PM on Sunday, Andrew called me and said, “Raj, we’re making progress. We don’t have all the answers yet, but can you go to the judge and tell him that we are working on it?” In court the next morning we asked the judge for more time, and he said, “You can have all the time you want.” I think he was relieved.

By 4 PM that day Dow had arranged its financing and we had an agreement, which we asked the judge to read into the record. The same day—one of the lowest points of the year for the stock market—Dow’s directors signed off on the deal. Up until then I hadn’t been certain it would really happen. Our stock had been trading down, and at one point it went under $50 a share. But in the end we got the $18 billion.

How Did the Deal Work Out for Dow? by: Karen Dillon

On July 10, 2008, when the deal with Rohm and Haas was announced, Dow’s share price was around $35. The following March, as Dow scrambled to find alternatives to a collapsed joint venture with Kuwait Petroleum, it dipped to an interday low of under $6.

Ultimately, Dow arranged a bridge loan of more than $9 billion, sold a $3 billion equity stake to Rohm and Haas’s two major shareholders, and procured investments of $3 billion from Berkshire Hathaway and $1 billion from the Kuwait Investment Authority.

The market waited to see if that complex financing would crush Dow under its weight. But Dow paid off the bridge loan ahead of schedule, retired the debt to purchase Rohm and Haas, and has made a profit in every quarter since. The acquisition “was a pivotal point in the transformation of Dow,” says a company spokesperson. Dow’s so-called performance businesses, which include the majority of former Rohm and Haas assets, accounted for nearly two-thirds of its sales in the second quarter of 2010. By mid-September the company’s shares hovered near $26.

The relationship between the two CEOs survived the ordeal as well. “A week after the closing [Dow CEO Andrew Liveris] sent me a case of excellent Australian wine as a thank-you,” Gupta says. “And we continue to maintain cordial relations.”

On March 31, I finally left Rohm and Haas for the last time. The deal closed the following day. I hadn’t allowed myself to breathe a sigh of relief until that moment. It was a bittersweet victory for me, because I had invested so much of my time and energy in building the organization and managing for the long term that it was hard to let it go. I took solace in the fact that most of the family trusts’ proceeds from the sale were invested in charities right away. There’s a sense, though, that the company doesn’t exist anymore, which is sad for me.

But I concluded that I could move on with my life—the retirement I had long planned. I’m not certain I could lucidly recite that day’s events. Certainly I can’t offer profound reflections on them. At the time, I was focused on the misfortune of having had to deal with this problem at the end of my career. Now, with the benefit of more than a year’s hindsight, I recognize that we had a strong dose of good fortune, too, which allowed us to achieve this nearly impossible outcome.

A version of this article appeared in the November 2010 issue of Harvard Business Review.