Rohm & Haas files suit to force Dow merger
The multi-billion-dollar chemical merger lauded this summer for its economic logic and high returns for Rohm & Haas Co. shareholders landed yesterday in a Delaware state court.
The multi-billion-dollar chemical merger lauded this summer for its economic logic and high returns for Rohm & Haas Co. shareholders landed yesterday in a Delaware state court.
Specialty chemical firm Rohm & Haas filed a lawsuit asking a judge in Delaware to force Dow Chemical Co. to complete a $15.2 billion acquisition of the Philadelphia company.
The megadeal was to close at 12:01 a.m. tomorrow, but Rohm & Haas said in the complaint that Dow Chemical did not intend to meet the deadline. Rohm & Haas is one of the Philadelphia area's largest employers, with about 3,000 workers in the region.
Dow reponded with the statement, "Recent events have made closing untenable at this time." It blamed the global economic recession, tight credit markets, a weakened chemical industry, and the collapse of its joint venture with Kuwait that would have provided $7 billion to $9 billion in cash for Rohm & Haas.
A court case is highly unusual for the stakes and the participants - two giant chemical companies.
The big question is whether a judge will enforce the signed merger contract between Rohm & Haas and Dow Chemical.
"We'll see if they can walk away," Edward Rock, a professor of business law at the University of Pennsylvania, said of Dow Chemical.
Cases in recent years in Delaware have sharpened the law around busted-up mergers, Rock said. "This is what contracts are for," he said, adding that none of the other cases involve nearly as much money.
Court action could be unpleasant. Rohm & Haas claimed in the complaint that Dow Chemical chief executive officer Andrew Liveris personally lobbied officials at the Federal Trade Commission in Washington earlier this month to delay approvals for the deal.
FTC approval was expected on Jan. 5. Liveris' action delayed the approval till Friday, the complaint states. The merger agreement said the Dow-Rohm & Haas deal would close two business days after the federal agency OK'd it, leading to tonight's deadline.
Dow Chemical representatives were not available for comment.
"This is not the optimal solution," said Rohm & Haas spokeswoman Emily Riley.
Doubts arose about the Michigan company's financial wherewithal to pull off the Rohm & Haas deal in late December when the Kuwait government abandoned a joint venture that would have provided Dow with $7 billion to $9 billion in cash.
Dow has an agreement with a consortium of 19 banks for a $13 billion loan to purchase Rohm & Haas. Banks in the consortium include Citibank, Morgan Stanley, Merill Lynch, Bank of America, Royal Bank of Scotland and Banco Santander.
Investing guru Warren Buffett and a Kuwaiti authority also said they will invest $4 billion into the Rohm & Haas acquisition.
This gives Dow $17 billion - or about $2 billion more than the acquisition price - for Rohm & Haas.
But ratings agencies have warned Dow that they would downgrade the company's credit to non-investment grade, or junk, if Dow completes the deal without selling assets or raising more cash.
The agencies also are concerned that Dow would have to refinance the bank loan in a year.
Rohm & Haas shares fell sharply yesterday, shedding $8.72, or 13.25 percent, to close at $57.10. Dow has agreed to pay $78 a share for Rohm & Haas. Dow shares fell $1.09, or 7.61 percent, to close at $13.24.
