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By Ernest Scheyder AP Energy Writer

NEW YORK (AP) — When Dow Chemical swooped in last summer to buy a much-smaller rival, many believed the more-than $15 billion offer was too high with Wall Street barreling toward an economic meltdown and the mortgage crises in full swing.

Yet Dow Chemical Co. needed the stability that came with the products sold by Rohm & Haas, a specialty chemical maker that has carefully crafted a reputation as an industry leader for nearly 100 years.

Since that July bid, Dow's market capitalization — or the total value of all its shares — has fallen well below that of its target and even below its $15.4 billion offer for the Philadelphia-based company.

On Friday, Dow Chemical moved nearer to closing the deal, one that CEO Andrew Liveris has said would be an economic disaster in the current environment.

Both companies confirmed they were in direct talks, yet a Delaware court date is still scheduled for Monday if the two can't come to an agreement.

The news sent shares of both companies soaring.

Whether Rohm & Haas is worth the price tag is up for debate, but few question that it has built itself into an elite company that travels nimbly in an industry dominated by chemical giants.

So how did Rohm & Haas, which created Plexiglas and sells Morton Salt, come to be so highly valued by one of the world's biggest chemical makers?

The company has a portfolio of chemicals used in high-end items like perfumes and hull coatings for boats. Made in small batches, specialty chemicals bring high profits and are not as susceptible to volatile commodity prices swings, like the chemicals Dow makes in huge quantities.

Rohm & Haas has meticulously honed its reputation over the past century as a business that tends to its customers.

In 1907 chemist Otto Rohm and businessman Otto Haas began selling leather-softening chemicals in Esslingen, Germany. In September 1909, Haas opened a new office in Philadelphia that would eventually split from its German parent during World War I under pressure from the U.S. government.

Haas took care of the business side, not just selling chemicals but making follow up visits to clients to make sure Rohm & Haas products performed as expected.

"Through this really interesting relationship, (Rohm & Haas) was really able to establish a reputation as a specialty chemical company that wanted to get in touch with the customer," said Regina Lee Blaszczyk, who's history of the company, "Rohm & Haas: Innovation Through Collaboration" is due out later this year.

Haas kept the innovative products coming and in 1933, he and his team inadvertently created something that he came to trademark a few years later as Plexiglas.

By 1941, when the U.S. entered World War II with planes featuring Plexiglas bomber noses, gun turrets and canopies, Rohm & Haas' sales had exploded.

While the company sold its Plexiglas business in 1998, it has consistently found new ways to bolster the product line, including its 1999 acquisition of the iconic Morton Salt brand.

"Rohm & Haas has shown it has the ability to create new molecules and get them out on the market successfully," said Arthur A. Daemmrich, a professor at Harvard Business School. "It does so in those arenas where you have better profit margins than you do in the commodity chemicals business."

Late in 2007 the company said it could earn as much as $6 per share in 2010 due to growth in its electronic materials and coatings businesses. That estimate came after the company posted 2006 profit of $3.32 per share.

Those profits soon caught the eye of competitors in the chemical industry, including Dow.

Dow makes commodity chemicals, the building blocks for items like T-shirts and plastic bags. Those chemicals are sold in massive quantities at razor-thin profits.

Dow saw in Rohm & Haas a buffer against increasingly volatile commodity swings. It made its bid two weeks before crude oil hit an all-time high near $150. Companies like Dow are major consumers of oil.

But Dow's timing could hardly have been worse.

The credit markets were already frozen. Then in December, a state-owned Kuwaiti company pulled out of a joint venture with Dow, a deal that Dow had expected to generate more than $7 billion in cash.

Midland, Mich.-based Dow's offer for Rohm & Haas at $78 per share, already considered a tad pricey, now looked downright expensive.

Dow Chemical let a deadline pass for acquiring Rohm & Haas in January, preferring instead to pay a daily $3 million ticking fee.

Last month Dow announced its first quarterly dividend cut in 97 years, citing the economic downturn, the failed joint venture and the Rohm & Haas buyout.

"Dow is stuck between a rock and a hard place," Gabelli & Co. analyst Rob Felice said in an interview with The Associated Press. "It knows it needs to close the deal, and unless the terms or financing are altered, it's in a difficult situation."

The chief executives for both companies, Dow's Liveris and Rohm & Haas' Raj Gupta, are listed as potential witnesses in the court case.

Rohm & Haas declined to comment for this article.

 

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