Dow-Rohm Merger Could Mean Sale of Morton Salt

Morton Salt may be one of the few hoping that Dow Chemical fails to close its $18 billion takeover of Philadelphia chemical company Rohm and Haas. Rohm and Dow are set to meet in court next month, where the former will try to force the latter to close the deal at $78 a share.

The merger poses risks for Morton, which is best known for providing household salt. The unit could get dismantled if the Dow-Rohm deal gets done -- or, perhaps more likely, sold outright.

Morton, which employs about 3,000 people, isn't glamorous. The Chicago-based company splits its business across different salt sectors. It provides salt for roads and sidewalks, industrial salt for food processing as well as salt to soften water. Its most famous division is food salts, which features the iconic umbrella girl and famous slogan, "When it Rains It Pours."

The company is so under the radar that when Dow announced its takeover of Rohm in July 2008, it didn't even mention Morton. Instead, Dow touted the $800 million in pretax savings it expected from the merger. Dow, a diversified chemical company with $58 billion in sales, also focused on how the merger would make it the world's largest specialty chemical company.

Times have changed, and Morton has emerged as a cash cow. On Feb. 9, Rohm reported that fourth quarter sales dropped 13 percent to $2 billion. Morton, meanwhile, was the only Rohm unit to perform well. Morton's fourth quarter sales rose 10 percent to $401 million while adjusted pre-tax profit increased 94 percent to $103 million. In contrast, Rohm's other units, including the specialty materials group, all reported declines. Dow, understandably, is trying to get out of paying $78 a share.

Rob Felice, a Gabelli & Co. analyst, doesn't believe Morton will get dismantled if the Dow-Rohm transaction is completed. But job cuts and a restructuring will likely result. "It doesn't make much sense that Dow would destroy value or look to cut into a business that's the bright spot in Rohm and Haas's portfolio," he told me.

The most likely outcome is a sale. In 2007, Rohm put Morton on the block for what one banker I trust told me was $1.4 billion, but apparently found no takers. Rohm-Dow will likely use the proceeds of a revived Morton sale to pay down debt, analysts said. But that will also be a tough bet. "Getting value for Morton will be almost impossible in today's market," one banker told me.