Some thoughts on today’s Dow Chemical (DOW) and Rohm & Haas (ROH) news.
The Dow Chemical Company (NYSE:DOW) confirms it has informed Rohm and Haas that Dow will not close the proposed acquisition on or before January 27, 2009.
Dow has determined that recent material developments have created unacceptable uncertainties on the funding and economics of the combined enterprise. This assessment is based on several macro-economic factors such as the continued crisis in global financial and credit markets combined with the dramatic and stunning failure of Petrochemicals Industries Company of Kuwait (PIC) to fulfill its obligation to complete the formation of the K-Dow joint venture in late December 2008.
“Our long term strategy remains unchanged and the proposed acquisition of Rohm and Haas is consistent with this strategy,” said Andrew N. Liveris, Chairman and CEO. Since Dow learned in late December of PIC’s failure to close the K-Dow transaction, Dow has been aggressively engaged on multiple paths seeking ways to enable the Rohm and Haas transaction. Dow remains interested in discussions to find a solution to complete the acquisition of Rohm and Haas, but recent events have made closing untenable at this time.
“Dow Chemical has a long history of resiliency in responding to changing market conditions, and that resiliency continues,” said Liveris, “but the world has changed significantly and we still do not see the bottom of this unprecedented demand destruction which only accelerated through the fourth quarter and brought December operating rates to historic lows. The Company’s commitment to remain financially strong is part of the DNA of this 112-year old company.”
Dow previously announced a series of wide-ranging actions to address global economic conditions and is accelerating those actions based on continued deteriorating demand. “We are well-prepared to take the appropriate steps to ensure we retain our options and financial flexibility to see our way through what we anticipate will be an extremely challenging year,”
said Liveris.
Rohm and Haas Company (NYSE: ROH) announced today that it has been advised by The Dow Chemical Company that Dow does not intend to close the pending acquisition of Rohm and Haas on or before Tuesday, January 27, 2009. Rohm and Haas and Dow have received all required approvals for the closing and the merger agreement requires that Dow close by such date.
Rohm and Haas stated that it intends to pursue all available alternatives to protect its shareholders’ interests.
What does it all mean in the end? Nothing really. The deal will still get done, just not now. The deal in in Dow’s best interest and even a 10% price reduction is more money than Rohm shareholders are going to see for the rest of this decade so they will want it done. If the Haas family really wants to protect shareholders (being the largest, lets assume they do), they will work to get the deal done. It just comes down to financing.
By delaying the deal, Dow is also setting up a damages claim against Kuwait for their upcoming litigation.
Now that oil (USO) prices are creeping back to $50 a barrel from $30, Kuwait may be rethinking its decision to pull out, simultaneously ruining its international reputation and come crawling back. Dow will have other bidders for some or all of the commodity business’s it wants to sell, again, just a matter of time.
Liveris promised to keep the balance sheet at Dow in tact and this move is doing just that. Now if you are trading the deal this news may be awful, but id you are a long term Dow shareholder enjoying a 10% dividend, this is good news.
Yes I know the merger agreement is rather “iron clad” as folks like to say for dramatic effect but lets be honest, by the time anything winds its way through court, this will all be settled anyway. Both side are simply posturing, and both side need the deal to get done…
It will, eventually and it will be done in a way that does not pout the company in a perilous position.
Disclosure (“none” means no position):Long Dow, Long Oil (DXO, not USO), none
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