According to the latest information, the Dow – Rohm & Haas merger is in serious danger of falling through. As per the original merger agreement, Dow were supposed to have completed the transaction within two business days of receiving the approval for the merger from the US Federal Trade Commission (the EU has already approved the merger). The USFTC has voted to accept a consent decree agreed to by Dow on the 23rd of January, 2009.
Dow has officially advised Rohm & Haas about their inability to complete the transaction by January 27. In a statement issued by them, “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.”
According to Dow CEO Andrew Liveris, “Our long term strategy remains unchanged and the proposed acquisition of Rohm and Haas is consistent with this strategy.” Since Dow has learned in late December of PIC’s failure to close the K-Dow transaction, it 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 & Haas, but recent events have made the closing untenable at this time. In a subsequent interview, Liveris said that getting financing for the deal was very difficult and Dow is talking with its banks to try to beak the stalemate; he had told Rohm & Haas that he would declare by June 30 if Dow could close the deal.
According to AP, Dow’s market cap has fallen sharply since the middle of 2008 to about US$ 13.2 billion whereas the price for acquiring Rohm & Haas (which has a market cap of US$ 12.8 billion) is US$ 15.4 billion. According to CNBC, Liveris has told them that “Dow and Rohm & Haas are currently in fine shape on a stand-alone basis, but a merger would create an economic disaster for the combination.”
Dow is faced with a substantial downgrade in its investment-grade credit rating if they go ahead with the deal at this time, thus considerably increasing the cost of funding the acquisition. As Liveris put it, “Dow Chemical has a long history of resiliency in responding to changing market conditions, and that resiliency continues, 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. 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.”
Meanwhile, Rohm & Haas has filed a suit against Dow to protect their interests and to force the latter to go through with the deal. The trial is now scheduled to commence on March 9, 2009 in Georgetown, Delaware and to be concluded that week.