Dow scrambling to keep $15 bln Rohm takeover alive-FT Mon Dec 29, 2008 8:37pm EST
SINGAPORE, Dec 30 (Reuters) - Dow Chemical (DOW.N) is scrambling to keep its $15 billion takeover of rival Rohm & Haas (ROH.N) alive after a surprise decision by the Kuwaiti government to scrap a joint venture with Dow, the Financial Times reported on Tuesday.
The Kuwaiti decision deprived the U.S. group of about $9 billion in planned financing which it would have used for the Rohm deal, but unidentified people close to the situation told the FT that Dow could still tap a $13 billion bridge loan to pay for the takeover.
The sources also said Dow was likely to try to renegotiate the price of the deal to reflect the recent drop in Rohm's share price, the newspaper said, adding that both Dow and Rohm declined to comment.
Midland, Michigan-based Dow agreed in July to buy Rohm & Haas for $78 a share to broaden its specialty product offerings. The deal carries a termination fee of $750 million payable to Rohm & Haas.
Shares of Dow Chemical and Rohm & Haas plunged more than 16 percent on Monday in reaction to Kuwait's decision, reducing Rohm's share price to $53.34. [ID:nLS308821]
Dow, the largest U.S. chemical company, could be hurt even if it goes ahead with the Rohm & Haas purchase as it would be saddled with a large debt load from the deal, analysts said.
Analysts told Reuters Dow was now under pressure to renegotiate its bid for Rohm & Haas or, if possible, walk away from the deal.
In the past, Dow has said it could close the Rohm & Haas deal without the funds from the Kuwaiti joint venture.
Rohm & Haas said in a statement on Sunday that completion of Dow's joint venture was not a condition for the closing of the acquisition. It said it was working to complete the deal early in the new year.
Dow had planned to use part of the proceeds from the Kuwait joint venture to pay off a one-year, $13 billion bridge loan by a group of banks led by Citigroup, Merrill Lynch and Morgan Stanley, who advised the company on the Rohm & Haas deal.
Kuwait said decision to scrap the joint venture plan was due to the global financial crisis. Dow and other chemical companies are also struggling because of recession in most developed countries and a sharp slowdown in emerging economies.
If the acquisition does fall through, it would join a long list of deals withdrawn in 2008 amid a lack of available credit and plunging stock markets, including BHP Billiton Ltd's (BHP.AX) $66 billion offer for Rio Tinto Plc (RIO.L) and Hexion's $6.5 billion bid for chemicals firm Huntsman Corp. (HUN.N) (Editing by Kazunori Takada)
Dow Chemical fights for deal By Francesco Guerrera in New York
Published: December 29 2008 23:33 | Last updated: December 30 2008 01:35
Dow Chemical was scrambling to keep its $15bn takeover of Rohm & Haas alive on Monday after a surprise decision by the Kuwaiti government to scrap a joint venture that deprived the US group of about $9bn in planned financing for the deal.
People close to the situation said Dow could tap a $13bn bridge loan to pay for the takeover and added that the US company was likely to try to renegotiate the price of the deal to reflect the recent drop in Rohm’s valuation.
Kuwait cancels Dow Chemical deal - Dec-29The 19 banks that agreed to lend the funds, led by Citigroup, Merrill Lynch and Morgan Stanley, were likely to put pressure on Dow to pay a lower price in an attempt to avoid taking yet another writedown on the full value of the loan.
Dow has less than two weeks to close the deal, which also includes $3.7bn in Rohm’s debt, before the price tag begins to rise. Under the terms of the agreement, signed in July, if the merger is not completed by January 10, its price rises every day by a fixed amount to compensate Rohm investors for the delay.
Dow and Rohm declined to comment.
Uncertainty over the deal, which is pivotal to Dow’s strategy of increasing its exposure to high-margin speciality chemicals, sent shares in the two companies plummeting. Dow shares closed 19 per cent lower in New York at $15.32 – their biggest fall since 1980. Rohm shares were 16.1 per cent weaker at $53.34 – well below the $78 per share Dow agreed to pay.
The Kuwaiti government’s decision on Sunday to pull out of a $17.4bn joint venture for Dow’s commodity chemicals stunned the US company’s management and dealt a blow to its strategy of reducing its reliance on low-growth products.
People close to the situation said Dow would fight to extract the maximum break-up fee of $2.5bn from its former partner, Kuwait Petroleum Corporation, the state-owned oil company.
Dow has said it does not need the proceeds from the joint venture to pay for Rohm. However, the collapse of the deal is set to force Dow to use the $13bn one-year bridge loan.
Dow had hoped to use the proceeds of the joint venture to repay part of the loan in order to reduce its cost of capital and level of indebtedness. Copyright The Financial Times Limited 2008
The management should keep DOW alive not the deal alive! Even Kuwaltis are more intelligent than this impotent management. Walk out right now! ROH is not worth more than 10$/share at this dismal market condition.