By Christopher Hinton
NEW YORK (Dow Jones) -- A long-pending merger deal in which Dow
Chemical Co. would have acquired Rohm & Haas Co. appears to
have collapsed, with the suitor saying Monday that the recession
and tighter financial markets have created "unacceptable
uncertainties."
"Dow Chemical has a long history of resiliency in responding to
changing market conditions, and that resiliency continues," said
Chairman and Chief Executive Andrew Liveris
However, "the world has changed significantly, and we still do
not see the bottom of this unprecedented demand destruction," he
said in a statement.
In separate releases, the companies said the merger wouldn't be
completed by Jan. 27, with Rohm & Haas (ROH) adding that it's
now pursuing "all available alternatives" to protect the interest
of shareholders.
Neither released mentioned any ongoing negotiations. No one from
Rohm & Haas was available for questions, and Dow Chemical (DOW)
declined to comment beyond its news release.
According to terms of the $15 billion merger agreement announced
July 10, Dow Chemical may have to pay Rohm & Haas a termination
fee of $750 million.
The deal had valued the specialty-materials company at $78 a
share. Rohm & Haas shares lately fell more than 16% to
$55.21.
Shares of Dow Chemical initially jumped higher, in contrast to
what's been a fourth-month decline that wiped our more than half
their value, but they surrendered the gains by midday.
Last Friday, the Federal Trade Commission granted antitrust
clearance for the deal, conditioned on Dow Chemical divesting some
assets. .
Hitting a wall
Many of the Dow Chemical's end markets have been severely
affected by the recent credit crisis that followed the collapse of
Lehman Brothers Holdings last summer.
Investors also fretted the acquisition would eventually put Dow
Chemical's dividend at risk, despite the company's assurance to the
contrary. The company has maintained or raised its dividend every
quarter since 1912.
Dow Chemical agreed to buy the Philadelphia-based Rohm &
Haas in July, but the suitor hit a wall when it came to financing
the deal after Kuwait's Petrochemical Industries Co. recently
bailed out of a joint venture that would have provided funding.
Analysts have since expressed skepticism that Dow Chemical would
be able to close on the Rohm & Haas deal, although the Midland,
Mich.-based chemical giant has said it could fund it with $13
billion in short-term loans and $4 billion in equity
investments.
It also hoped to find alternative funding through a new
joint-venture partnership, and its announcement Monday seemed to
leave open this possibility.
The joint venture's termination was more an outgrowth of
internal Kuwaiti politics rather than stemming from economic
concerns, said Morningstar analyst Ben Johnson.
"More likely than not the transaction will be close, but not
before Dow can create an additional cash cushion," Johnson said in
an interview. "Timing is another thing entirely, and it's difficult
to get a handle of when that will be."
"Our long-term strategy remains unchanged," CEO Liveris said,
adding: "The proposed acquisition of Rohm & Haas is consistent
with this strategy."
The Kuwaiti joint-venture plan would have led to the formation
of K-Dow, a key part of Liveris' plan to reduce Dow Chemical's
reliance on commodity products and gain access to lower-cost
petroleum.
The cancellation followed withdrawal of support for the deal by
the Supreme Petroleum Council, Kuwait's top energy body, on Dec.
28. That followed sharp criticism for the deal by Kuwaiti
lawmakers, especially after disclosures that commissions worth $850
million were assigned to certain groups that supported the deal,
according to an article in the Kuwait Times published at the
time.
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