Dow-Rohm terms still in negotiation

When Rohm & Haas Co. and giant Dow Chemical Co. announced their megamerger in July, there were comforting words from Dow about how it would seek to preserve the Philadelphia firm's special corporate culture and to bolster the region.

Rohm & Haas would operate as a stand-alone subsidiary inside Dow with, as one analyst recently described it, a "moat" around it.

Dow would contribute about $5 billion of its own specialty-chemical products to Rohm & Haas, technically boosting the local operation to a $14 billion business from a $9 billion concern.

Rohm & Haas would be a star in the Dow universe, with backing at the highest reaches of the parent company and two Rohm & Haas board members on Dow's board.

But today, with about two weeks to go before the now-rancorous Dow-Rohm merger closes, all that seems subject to renegotiation - with profound implications for the company that has been a Philadelphia mainstay for about 100 years.

A review of remarks Monday by Dow chief executive officer Andrew Liveris makes clear that, given the current bad economic conditions, the deal's final terms are uncertain and may not be as promised last summer.

At its Midland, Mich., headquarters, Dow officials are reconsidering how to run the post-merger company with about $60 billion in revenue because of new economic realities.

Dow will have to cut costs deeper than "we originally envisaged," Liveris said, noting that there would be 3,500 additional jobs trimmed after the consolidation. They would come "primarily from Rohm & Haas," he said.

Dow has yet to announce two Rohm & Haas board members for the Dow board, but Liveris did say he considered two candidates in December.

And although Liveris did not specifically address bolstering the Rohm & Haas product portfolio with the $5 billion in Dow business, he referred to "relooking at how we'll put that model in place, because of the different world we're in."

In retrospect, business-law professors say, the pledge was good for Dow's image here, but not legally enforceable now, despite the companies' original good intentions.

"It seems more like a PR move that makes business sense than a legally binding obligation," said Anthony Page, an associate professor at the Indiana University School of Law, who has closely followed the merger.

Edward Rock, a corporate-law professor at the University of Pennsylvania, said: "Dow is buying the business and can run it the way it wants to. At the point the Haas family decided to diversify its assets, that spelled the end of Rohm & Haas as an independent Philadelphia-based organization."

Dow officials said Friday that they were working hard to finalize details of the merger, which was expected to close April 1, and that they had not ruled anything in or out.

"As one would expect, we have much work to do, and clearly, some of that work will require some difficult decisions and aggressive actions to position our combined organization for success," said Patti Temple Rocks, Dow vice president for global public affairs, brand, and reputation. "And while we don't have any specific information to share at this time, we will commit to being candid and clear about those decisions once they are made. Until that time, any speculation is unproductive at best, and potentially harmful."

Rohm & Haas officials said it was too soon to draw conclusions about Dow's intentions. "We just don't have anything concrete," said spokeswoman Emily Riley, "and we don't want to speculate."

Integration planning between Dow and Rohm & Haas had advanced by late 2008 to the point of appointing managers in the post-merger company. That was halted in January and has not resumed, Rohm & Haas employees say.

Planning stopped when the merger landed in Delaware's Court of Chancery in a bitter court battle between Dow and Rohm & Haas. The battle ended Monday with Dow's agreeing to close on the purchase next month.

The original merger deal was struck in July, in the midst of the commodity bubble. Dow agreed to buy the company for $78 a share, or $15.3 billion. Earlier this year, Dow sought easier terms from Rohm & Haas, which declined and sued to force Dow to honor the merger contract.

Dow warned of "irreparable harm" to both companies if it were forced to close on the merger at the original terms. But, fearing it would lose in court, Dow agreed to those terms and has been borrowing heavily to make it happen.

The actual cost of the deal, inflated by special "ticking fees" and transaction costs, is about $16.5 billion, Dow has said. It also will assume about $3 billion in Rohm & Haas debt.

Otto Haas founded Rohm & Haas in 1909. The firm is considered to be paternalistic toward its employees, and the Haas family is a major supporter of Philadelphia-area philanthropies.

The company employs 15,500 around the world, with 3,000 locally at a Spring  House, Montgomery County, research lab; a plant in Bucks County; a plant and corporate headquarters in Philadelphia; and a plant near Wilmington.

Rohm & Haas officials noted that job cuts did not always mean actual layoffs and that a restructuring could take place over years. Jobs also could be eliminated through attrition or retirements.

As for the two board members, Rohm & Haas could complain about the delay in installing them on the Dow board. But Page, the Indiana law professor, said: "I don't think it is something that they would sue over."