Rohm & Haas Gets Sweet Deal

We should have seen this one coming Friday. Sometimes the best trades get overlooked when you are busy managing your portfolio and that is what happened today. When I heard about the news of Rohm & Hass (ROH, $74.00, up $10.20) and Dow Chemical (DOW, $6.33, down $0.78) talking again, I knew it was already too late…

Rohm & Haas shares were up $9 on Friday after news broke that the two companies were back in discussions about doing a deal that had broken down since it was orginally announced last July. Dow Chemical backed away after the brutal economic downturn had pushed the price beyond what Dow Chemical thought to be a fair price given the conditions.

Rohm & Haas then sued and the two parties went to court today but had until the end of the day to reach a settlement. There was risk that the two sides were going to battle it out in court and it would have been tough to go long over the weekend but Friday’s news was a signal the deal was likely going to go through. The agreement came after a day of intense negotiations and two consecutive delays in the trial.

Trading in Rohm & Haas was halted following conflicting reports on a settlement but the deal has been confirmed at $78-a-share and will close by April 1.

The March 75 calls (ROCHCO, $2.00) closed Friday at 45 cents and opened today at 95 cents. They should be worth $3 at the open on Tuesday with a $78 deal since they are technically “in-the-money” and would be worth that. However, with the deal not closing by the time the March options expire, they may not make it to $3 as the stock will likely trade just below that until the deal is final.

M&A (merger and acquisition) activity is heating up and a lot of deals are getting done. This is a good sign for the market in the long run but it surely didn’t help stop the bleeding today as the Dow lost another 80 points and finished at 6,547.

Rick Rouse
Rick@OptionsMentoring.com

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