Dow Chemical, the biggest chemicals maker in the US, is buying Rohm & Hass (R&H), the paint ingredient and chemicals group, for $18.8 billion (£9.5 billion) including debt.

Dow has the backing of Berkshire Hathaway, the investment vehicle run by Warren Buffett, and the Kuwait Investment Authority (KIA) for the deal.

The purchase is part of Dow’s strategy to reduce its exposure to soaring commodity prices and move towards selling more profitable products, such as paints, coatings and electronic materials. Record oil prices have eaten into Dow’s margins in recent months, reducing profit from sales of its products including polyethylene and styrofoam.

Financing for the deal, which is at a 74 per cent premium to R&H’s closing price yesterday, will include a $3 billion equity investment from Berkshire Hathaway and $1 billion from the KIA.

Analysts said that, although the purchase will use up much of the company’s financial firepower, it was needed to help the company reduce its commodity exposure.

The acquisition is the biggest in Dow’s 101-year history, exceeding the £12 billion it paid for Union Carbide in 1999; the company said the deal would start to boost profits “meaningfully” two years after completion.

Dow expects the acquisition to provide pre-tax cost synergies of at least $800 million a year from increased purchasing power for raw materials, supply chain improvements and the merging of corporate services.

The deal represents Mr Buffett’s third big investment this year, after Berkshire spent $4.5 billion in March for a 60 per cent stake in the Pritzker family’s Marmon Holdings, and it committed $6.5 billion to help finance the takeover of William Wrigley, the world’s biggest chewing gum maker, by Mars.

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