Dow, Rohm And Haas Deal Gets Ugly

Another Dow Chemical deal is in trouble. The Midland, Mich.-based chemical giant says it won't close its $15 billion acquisition of Rohm and Haas by the deadline the parties had agreed to for completing the transaction. Rohm and Haas has responded by suing Dow to force it to consummate the deal, which was announced last July.

Under the agreement, Dow was required to close the deal two business days after all conditions were met. The final obstacle was Federal Trade Commission (FTC) clearance, which was granted Friday, Jan. 23, and requires Dow to sell off some acrylics operations. On Monday, Jan. 26, Dow announced that it wouldn't close the transaction the following day.

Dow blames its failure to close the deal on the global financial crisis and another failed deal: the sale of half of its commodity chemical and plastics business to Petrochemical Industries Co. of Kuwait. That deal would have given Dow some $9 billion in pretax revenues. "Recent events have made closing untenable at this time," according to a company statement.

"The world has changed significantly," Dow CEO Andrew N. Liveris said, "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."

Rohm and Haas's lawsuit was filed with the Delaware Court of Chancery, the same court that last year heard Hexion Specialty Chemicals' plea to get out of its purchase of Huntsman Corp., also for economic reasons.

In its filing, Rohm and Haas said Dow's excuses are irrelevant. "By July 2008, the credit markets were already in turmoil, and the risk that the U.S. and world economies could be entering a deep and prolonged recession was widely acknowledged," the suit said. Moreover, Rohm and Haas said Dow has secured $17 billion in financing to complete the purchase, $2 billion more than is needed.

Rohm and Haas added that Dow's Kuwaiti deal was not a condition to its acquisition, something that both Liveris and Geoffery E. Merszei, Dow's chief financial officer, acknowledged to analysts when the Rohm and Haas deal was originally announced.

Rohm and Haas's suit paints Dow as desperate to delay the transaction. The Philadelphia-based firm says Liveris personally visited three FTC commissioners seeking a delay in their approval of the merger to buy more time.

In mid-January, after Rohm and Haas executives found out about Liveris' efforts, Liveris and Rohm and Haas CEO Raj Gupta met in Philadelphia. According to Rohm and Haas, Liveris asked Gupta to allow the deadline for closing the merger to slide to June 30, a request Gupta denied. Liveris then asked for more time again in a letter, promising, "We will be able to determine our ability to close the transaction" by June 30.