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.

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary. You can use this link on the day this article is published and the following day.