(Updates with detail from Delaware Court filing, starting in the first paragraph.) 
   DOW JONES NEWSWIRES

Dow Chemical Co. (DOW) warned Tuesday that it could face multiple debt defaults if forced to consummate its $15.3 billion merger with Rohm & Haas Co. (ROH) and "jeopardize" both companies.

The world's third-largest chemicals group by revenue said in a court filing that closing the deal on the terms agreed last year would lead to "irreparable harm" and likely credit rating downgrades.

Dow Chemical issued its rebuttal to a suit from Rohm & Haas after failing to close the merger on schedule last week.

Its filing suggests the company is prepared to dig in after failing to agree fresh terms with its target, while a $1.55 billion fourth-quarter loss highlights its continuing exposure to the weakening commodity chemicals business.

However, it also indicated that talks with Rohm & Haas continue. Analysts have suggested Dow could work with a deal priced around $50 a share versus the $78 agreed last year.

The plan to diversify into specialty chemicals through the Rohm & Haas deal was derailed when a planned joint venture with a Kuwaiti group collapsed at the end of 2008.

The move removed a potential $9 billion cash injection earmarked for the Rohm purchase, leaving Dow reliant on bridge loans.

"A confluence of dramatic and unforeseeable shocks - to Dow, to the chemical industry as a whole, and to the banks and financial markets - has made it impossible to consummate Dow's planned acquisition of Rohm and Haas at once without jeopardizing the very existence of both companies," the company said in a 62-page court filing.

It warned "of other unforeseeable consequences" if faced with a downgrade and the inability to issue commercial paper.

Rohm & Haas last week sued to force Dow to close the merger, but Dow denied all conditions to its obligation to close have been satisfied.

It also denied that it had breached the agreement, "intentionally or otherwise" or that Rohm had suffered a "material adverse effect" in its business.

Dow shares were up 5.4% at $11.65 in pre-market trading, trimming earlier losses even though its fourth-quarter results were well below analysts' lowered expectations. The stock has lost nearly half its value the past month and a half.

The chemical industry has been slipping as the spreading economic malaise has hurt demand for the basic chemicals and plastics used in most industrial and consumer goods, even in once hot markets like China.

"As we enter 2009, we are assuming that the late-2008 demand levels will continue for several quarters and possibly beyond," said Chairman and Chief Executive Andrew Liveris in a statement.

He said the low inventories held by customers could help trigger a "rapid" recovery, perhaps in the second half of the year.

Dow reported a fourth-quarter net loss of $1.55 billion, or $1.68 a share, compared with year-earlier net income of $472 million, or 49 cents a share. The latest quarter included $1.02 a share in charges from its restructuring and goodwill write-downs, among other items.

Revenue fell 23% to $10.9 billion as volume slid 17%, reflecting lower demand in all its operating segments and geographic markets.

Analysts polled by Thomson Reuters expected earnings of 7 cents a share on $13.37 billion in revenue.

Chemicals makers have been trying to rein in costs by slashing production and laying off workers, with some filing for bankruptcy. Dow has announced plans to cut 5,000 full-time jobs, or 11% or its work force, close 20 plants and sell several businesses. Liveris also had suggested that Dow's dividend may be at risk.

"We are planning for a global recession throughout 2009 and will continue to take actions on managing our cash and controlling our costs with the same intensity that we demonstrated in the fourth quarter," he said Tuesday.

The industry has been struggling amid weak sales for commodity chemicals, as well as high energy and other financing costs. Dow has pursued Rohm as part of its plan to expand into the higher-margin specialty chemicals business.

-By Tess Stynes, Dow Jones Newswires; 201-938-2473; tess.stynes@dowjones.com

(Ana Campoy and Doug Cameron contributed to this report)

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