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Will Dow buy Rohm & Haas now that Kuwaiti deal is dead?

Investors have been speculating that Dow Chemical's $15.4 billion purchase of Philadelphia's biggest specialty chemical firm could be in trouble if a huge joint venture in Kuwait fell apart.

Since Dow Chemical Co. announced its $78 per share acquisition of Rohm & Haas Co. last summer, all of us have been presuming it's a done deal.

Announced in July, Rohm & Haas' shareholders approved the transaction in late October, and the deal is expected to close early in the 2009.

But Sunday's announcement by the Kuwaiti government that it was scrapping a $9 billion joint venture with Dow Chemical is bound to affect its plans to buy Philadelphia's Rohm & Haas.

Dow Chemical and Kuwait's Petrochemicals Industries Co. were set to create a 50-50 joint venture called K-Dow Petrochemicals. The company was to have its headquarters in the Detroit area. But falling crude oil prices from $150 to below $40 a barrel have hurt the financial health of oil producing countries, including Kuwait.

The K-Dow deal had come under political pressure in recent weeks from Kuwaiti lawmakers who viewed it as a waste of public funds. On Sunday, the Kuwait government dropped the deal calling it "very risky." Here's Reuters' version of the story.

In a statement, Dow said it was "extremely disappointed" and is evaluating its options under its joint venture agreement.

What does any of this have to do with Dow's pending $15.3 billion acquisition of Rohm & Haas? Apparently, completion of the K-Dow joint venture would have supplied some of the funding Dow needs to repay a lot of the $13 billion in debt it is using to close its all-cash bid for Rohm & Haas. Without those billions, where does Dow come up with that kind of funding in the short run?

Some investors have been betting on a collapse in the Dow/Rohm & Haas deal, as the Web site Seeking Alpha reported on Christmas Eve based on action in the options market. That speculation shows up in Rohm & Haas' stock price which has been falling in recent weeks. On Friday, Rohm & Haas shares closed at $63.56, down 32 cents.

I must stress that Dow Chemical's statement on Sunday does not mention the status of the Rohm & Haas deal at all. And it's on until Rohm & Haas and Dow Chemical say otherwise.

But the collapse of K-Dow doesn't make it easier for Dow to swallow Rohm & Haas.