Kuwait Dumps Dow Chemical, Putting Rohm & Haas Deal at Risk

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

• Bloomberg:
  Rohm & Haas Drops After Dow Deprived of Kuwaiti Funds