Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
By Jason Simpkins
Associate Editor
Money Morning
The Dow Chemical Co. (DOW) may be forced to abandon its takeover of Rohm & Haas Co. (ROH) now that a $17.4 billion joint venture with Kuwait's state-run oil company has been scrapped.
Kuwait's Petrochemical Industries Co. earlier this week cancelled plans to take a 50% stake in Dow's plastics unit amid pressure from government officials alarmed by plunging oil prices.
The venture would have created the world's largest maker of polyethylene – a chemical used in wide array of plastic products, such as bottles and compact discs. It also would have provided Dow with a $7.5 billion cash infusion that the company had earmarked for its pending takeover of Rohm & Haas.
The Philadelphia-based Rohm & Haas on July 10 agreed to a $78 a share takeover offer from Dow Chemical. Dow planned to finance the takeover with a $13 billion bridge loan, a $3 billion equity investment by Berkshire Hathaway Inc. (BRK.A, BRK.B), and a $1 billion investment from the Kuwait Investment Authority.
With the proceeds from the Kuwait deal, Dow would only have needed $5 billion of the bridge loan, Bloomberg reported.
Dow can claim as much as $2.5 billion as compensation for Kuwait's withdraw according to a Dec. 1 regulatory filing, but the company could still struggle to secure enough funding to complete its $15.4 billion takeover of Rohm & Haas.
"It is doubtful that Dow will be able to easily raise the funds" to complete the deal, Sean Egan, managing director of Egan-Jones Ratings Co. told Bloomberg. Dow has been "skewered," he said.
Of course, some analysts believe that rather than abandon its takeover of Rohm & Haas, Dow Chemical will try to renegotiate.
Dow's original $78 a share offer was a 74% premium to the company's July value. Deutsche Bank AG (DB) analyst David Begleiter said in a note to investors that Dow will reduce that offer to below $70 a share.
"There appears to be no way for Dow to unilaterally walk away from and/or terminate the merger agreement with Rohm & Haas," said Begleiter.
Rohm & Haas issued a statement today (Monday) saying it "continues to work diligently towards completing the proposed transaction with Dow in early 2009."
News and Related Story Links:
- Associated Press:
Dow Chemical smay seek price for Rohm & Haas