Buying Rohm & Haas

This is a short term arb play.  Dow Chemical will purchase Rohm & Haas (ROH) for $78 a share and the deal will close in early 2009.

Berkshire Hathaway (BRK.A) is investing $3b in the deal and it is an all-cash transaction. Currently shares trade at $70 a share under the current credit environment. Purchasers of shares today will get a 10% 4 month return (30% annualized). Downside is minimal.

What could go wrong?
Kuwait, who is buying 1/2 Dow's commodity business for $9.5b could back out of the deal. That cash is being used for funding the ROH transaction. How likely is this? Well, when one considers that the newly formed JV is in the process of hiring personnel and setting up shop in Michigan, not very.

Berkshire could back out. Again, can anyone come up with a scenario when this has happened? Me either.

Since no debt is being used for the transaction and Dow has already received the bridge loan necessary to complete it, credit market conditions are irrelevant here.

Why did the price fall? Simple. During mass sell-offs like we have had, everything falls, whether is should or not. That gives us tremendous opportunity for very safe situational investing. What this trade is essentially is a way to park some money for 4 months with a very high probability of a 10% payoff with very little downside risk (not none, but very little).

The deals today that are at risk are the ones that depend on bank's lending for the financing, looks for the all cash or all stock ones.