Finance History | Global Dow Center, Midland, 1 April 2009 — US$3 Billion Helped Finance Rohm and Haas

On 1 April 2009, Berkshire Hathaway acquired 3 million shares of Dow Chemical Series A cumulative convertible perpetual preferred stock for US$3 billion in 2009 dollars. Dow issued the security as part of the financing for its acquisition of Rohm and Haas, which closed the same day. Berkshire had entered the investment agreement on 27 October 2008, when credit conditions were deteriorating sharply. The preferred stock paid an 8.5 percent annual dividend. On the original investment, that rate represented US$255 million per year under the 2009 contract before considering conversion or redemption. Each preferred share could be converted into 24.201 shares of Dow common stock, equivalent to a conversion price of US$41.32 per common share in 2009 dollars. The terms joined a senior income claim to possible participation in a higher common-stock price. Beginning in April 2014, Dow could force conversion if its common shares traded above US$53.72 in 2009 dollars for the required period. That provision limited how long Berkshire could retain both the preferred priority and the conversion option after a strong recovery. The financing addressed a specific corporate need rather than a general stock-market opportunity. Dow was completing a large strategic purchase during a period when banks and capital markets were strained, so committed funds carried unusual bargaining value. Berkshire still accepted substantial risk. The preferred shares depended on Dow's credit and dividend capacity, while the acquisition added integration demands, debt and exposure to cyclical chemical markets during a severe recession. For Dow, the high coupon and conversion feature were costs of obtaining dependable capital at the required time. For Berkshire, keeping liquidity before the crisis made it possible to exchange cash for contractual income and equity upside when many investors could not commit comparable sums. Global Dow Center in Midland anchors the security to the chemical company that issued it. The headquarters and neighboring industrial complex connect the US$3 billion investment in 2009 dollars to productive assets, acquisition risk and a layered capital structure designed for an exceptionally difficult financing market. Photo: Doc Searls, CC BY 2.0, via Wikimedia Commons.