Rohm & Haas Co., the target of a $15.4 billion takeover offer, dropped the most in 20 years in New York trading after suitor Dow Chemical Co. lost access to $9 billion of cash planned to fund the acquisition.
Kuwait yesterday scrapped a deal to buy a 50 percent stake in Dow Chemical’s plastics unit, eliminating proceeds earmarked for the takeover. Rohm & Haas, a maker of paint and circuit-board coatings, fell $14.36, or 23 percent, to $49.20 at 9:39 a.m. in New York Stock Exchange trading, the most since October 1987. Midland, Michigan-based Dow Chemical declined $3.75, or 19 percent, to $15.59.
While the collapse of the joint venture damages Dow Chemical Chief Executive Officer Andrew Liveris’s plan to cut the company’s reliance on commodity products, it may also leave shareholders of Rohm & Haas in the lurch. The Philadelphia-based business rose 64 percent after Dow Chemical’s $78-a-share offer on July 10 and has already lost 10 percent this month in New York trading.
“This throws into question whether the Rohm & Haas acquisition will go through,” said London-based Christopher Middleton, CEO of Atlantic Equities LLP, in a phone interview. “It’s less likely, because they still need to find the money.”
Liveris planned to fund the purchase with a $13 billion bridge loan, a $3 billion equity investment by Warren Buffett’s Berkshire Hathaway Inc. and a $1 billion investment by the Kuwait Investment Authority. Dow needed only about $5 billion of the bridge loan assuming the Kuwait proceeds, Chief Financial Officer Geoffery Merszei said Oct. 23 on a conference call.
Rohm & Haas issued a statement today saying the aborted deal “is not a closing condition for the proposed merger” and that it “continues to work diligently towards completing the proposed transaction with Dow in early 2009.”
Overpriced
The Kuwaiti government has been under pressure from opposition lawmakers to scrap the deal, which they said was overpriced. Some members of parliament threatened public questioning of Prime Minister Sheikh Nasser al-Mohammed al-Sabah, a nephew of Emir Sheikh Sabah al-Ahmed al-Sabah, Kuwait’s ruler. They said the investment was too large at a time of falling oil prices.
Crude-oil futures in New York have dropped more than 70 percent from the record $147.27 a barrel in July on signs that a deepening global recession is cutting demand for fuel and energy. Oil reached a four-year low of $32.40 on Dec. 19.
“There is a reassessment on the part of all of the sovereign wealth funds about where they want to be strategically,” said Middleton. “Commodity prices have come off an awful lot, and these funds have become more circumspect.”
Breakup Payment
Kuwait’s state-owned Petrochemical Industries Co. has the advantage of seeing how faltering demand impaired the $11.6 billion acquisition of General Electric Co.’s plastic division by Saudi Arabia’s chemical company. Saudi Basic Industries Corp., also known as Sabic, plans to cut 1,000 jobs, or 9.5 percent of its plastics unit workforce, after taking over the business last year. The Riyadh-based chemicals supplier is reducing thermoplastic production by about 20 percent.
“Dow is extremely disappointed with the decision by the Kuwait government and is in the process of evaluating its options pursuant to the joint-venture formation agreement,” Dow Chemical said yesterday in the statement.
Either side can claim as much as $2.5 billion if the other cancels the transaction, Dow Chemical said in a Dec. 1 regulatory filing.
“It is doubtful that Dow will be able to easily raise the funds” to complete the Rohm & Haas deal, Sean Egan, managing director of Egan-Jones Ratings Co. of Haverford, Pennsylvania, said in an e-mailed report. Dow has been “skewered,” he said.
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