Scuttled Dow Venture Hinders Saudi Deal
DECEMBER 31, 2008
By KEITH JOHNSON and RUSSELL GOLD
online.wsj.com
A scuttled Kuwait deal could affect not only Dow Chemical Co.'s planned acquisition of Rohm & Haas Co. but a $22 billion joint venture in Saudi Arabia as well.
Rohm's shares rose 12% Tuesday, recovering much of their loss Monday following the collapse of a Dow joint venture in Kuwait that would have given Dow cash to complete the $15.3 billion Rohm acquisition. The stock rebound suggested that investors believe Dow still will try to close the Rohm deal, albeit at a lower price than the agreed $78 a share. Dow shares rose 1.5% Tuesday, a day after dropping 19%.
Dow's deal making is part of a strategy by Chief Executive Andrew Liveris to transform the company from a maker of low-margin commodity chemicals into a producer of higher-profit specialty chemicals.
Given the importance of that strategy, "we believe that Dow will still work to close the deal, although it may attempt to negotiate a lower price," Credit Suisse analyst John McNulty said in a note Tuesday.
But the Rohm takeover was viewed as expensive even before chemical-sector stocks plummeted in recent months. Any attempt by Dow to renegotiate the deal now could prove tricky. Dow has no easy way out of the pact because the agreement lacks a "buyer's remorse" clause," which would let Dow pay a penalty to break the deal.
And Rohm is eager to press ahead with Dow's all-cash offer. A Rohm spokeswoman said the company remains confident the deal will close early next year. Dow declined to comment on the deal.
If it can't rewrite the terms of the Rohm acquisition, Dow would have to fund the deal entirely from a $17 billion financing facility. Dow had been counting on using about $9 billion in proceeds from the Kuwait joint venture to fund the Rohm acquisition.
Dipping further into the $17 billion financing facility could siphon cash from other big Dow projects already reeling from the global recession. Among them: a $22 billion joint venture with Saudi Arabian Oil Co. to build a giant petrochemical facility on the Persian Gulf.
Dow has said it is "fully committed" to the project, despite a restructuring that has included thousands of layoffs. Meanwhile, the global economic slowdown and falling oil and commodity prices have prompted Saudi Aramco to postpone other big projects.
"Absent Dow's financial issues, the likelihood of this project going forward on the timeline people expected is pretty low," said Jeff Tillery, an analyst with Houston-based energy investing boutique Tudor Pickering Holt & Co.
Dow declined to discuss the Saudi project.
Write to Keith Johnson at keith.johnson@wsj.com and Russell Gold at russell.gold@wsj.com
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