The stand-off between Dow Chemicals and Rohm & Haas over their merger (buyout) agreement has finally been settled. The latter had filed legal action against Dow for failing to go through with their 2008 US$ 15.3 billion buyout agreement. (See our Jan-Feb 2009 issue and our report dated January 30 on our website for details.) The trial was scheduled to commence on March 09 but the companies were able to arrive at an out-of-court settlement and a new agreement on the terms of the buyout.
Dow were seeking a reduction in the purchase price of US$ 78 per share as they claimed that a buyout at this value was no longer financially viable due to the global economic meltdown and erosion in the values of petrochemicals businesses; their going through with the deal as per the original agreement would have put the merged entity at serious risk of bankruptcy. Dow have also been severely hit by the pulling out of Petrochemicals Industries Company of Kuwait from the proposed K-Dow joint venture.
As per the new agreement dated March 09, Rohm & Haas’ two largest shareholders – the Haas Family Trust and hedge fund Paulson & Co. – have agreed to purchase US$ 2.5 billion in face value of perpetual preferred equity issued by Dow. Further, the Haas Family Trust will make an investment of an additional US$ 500 million in Dow’s equity at the latter’s option. All other Rohm & Haas shareholders will receive US$ 78 per share in cash. The equity investments will substantially reduce Dow’s immediate debt financing requirements to fund the acquisition. The restructured agreement means that Dow’s immediate cash outgo will be US$ 63 per share and another US$ 15 per share will be incurred as equity issuances. The original buyout agreement had already been backed by equity investments of US$ 3 billion by Warren Buffett’s Berkshire Hathaway and US$ 1 billion by the Kuwait Investment Authority in the form of convertible preferred shares. The acquisition has to be closed by April 01, 2009.
To make the company more financially secure, Dow has already commenced an aggressive asset divestment programme that is expected to yield approximately US$ 4 billion by:
a) Sale of Dow’s 45 per cent stake in Total Raffinaderij Nederland (a petroleum refining JV with the Total Group).
b) Sale of some of Dow’s equity stakes in its olefins and derivatives businesses in South East Asia.
c) Sale of Morton Salt, a highly profitable (2008 sales – US$ 1.22 billion) division of Rohm & Haas, which is likely to fetch around US$ 1.5 billion.
Dow will also immediately set in place an aggressive plan to realise combined synergies of US$ 1.3 billion as a result of the merger with Rohm & Haas.