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Dow, Rohm and Haas reconfigure deal

Dow Chemical will close its previously announced acquisition of Rohm and Haas on April 1, paying Rohm and Haas shareholders approximately the same amount of money per share that was agreed to last July but receiving a new $2.5 billion equity investment from the Philadelphia-based company’s two largest shareholders. The deal resolves a court battle between Rohm and Haas and Dow that began on Jan. 26.

Dow Chemical will close its previously announced acquisition of Rohm and Haas on April 1, paying Rohm and Haas shareholders approximately the same amount of money per share that was agreed to last July but receiving a new $2.5 billion equity investment from the Philadelphia-based company’s two largest shareholders. The deal resolves a court battle between Rohm and Haas and Dow that began on Jan. 26. At that time, Dow had sought to reconfigure terms of the acquisition reached last July when it still believed it would net some $9 billion from the merger of its basics plastics business with the Petrochemicals Industries Company of Kuwait (PIC).

When PIC reneged on that deal in the face of a deepening global economic crisis, Dow maneuvered to alter the terms of its arrangement with Rohm and Haas, which initially called for it to pay $78/share—a 47.9% premium on Rohm and Haas’s 60-day average share price last summer. After news of the new terms, Dow’s shares were up slightly, trading around $6.37, but down significantly from its 52-week high of $43.43/share. Rohm and Haas shares were up on news of the deal, trading above $77/share.

In a March 9 presentation to investors, Dow said the new deal had substantially reduced the cash purchase price and represented a “pragmatic outcome given current circumstances and economic environment.” In terms of its liquidity, Dow said the new pact improves its debt situation, which was a concern since proceeds from the failed PIC venture never materialized. Dow said the deal results in $4.3 billion in new debt being issued but believes its debt-to-capital ratio will be less than 50% by end of 2009.

Dow listed a series of moves it has undertaken to realign its structure given difficulties with the broader economy and the burden of this acquisition on its balance sheet. These included a further headcount reduction of 3500 following the December 2008 move to cut 5000 from payroll. Rohm and Haas announced 1500 in job cuts. As part of a “centralization of business services”, Dow announced 24 office, 10-15 plant, and six R&D/lab closures. The company will cut 2009 capital spending from a planned $2.3 billion to $1.1 billion and reduce its dividend by 64%. A 2009 salary freeze is forecast to provide $200 million in savings, with additional discretionary spending cuts savings $300 million.

Looking forward, Dow said it assumes 2009 will be a year of global recession, but it holds out hope for proposed government stimulus packages around the globe, saying they “hold great potential.” It also believes polyethylene (PE) is due for a rebound, predicting an “inflection point” for the material on the basis that nearly 1 billion lb of PE was removed from inventories in December alone, making supply replenishment imminent. The company has already announced price increases for PE of $0.07, $0.05, and $0.06/lb for January, February, and March, respectively. [email protected]

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