Woes Multiply at Dow Chemical
JANUARY 29, 2009
By ANA CAMPOY and LESLIE EATON
online.wsj.com
Dow Chemical Co.'s troubles multiplied Wednesday, as a rating agency renewed warnings it might lower the company's debt rating to junk status and the Kuwaiti parliament launched a bribery probe into a failed Dow joint venture.
Riding high only a few months ago, Dow now risks financial ruin, Chief Executive Andrew Liveris says, if a court forces it to move ahead immediately on the $15.3 billion acquisition of Rohm & Haas Co. that it struck last year.
Mr. Liveris argues he needs more time to arrange stable financing before going through with the purchase.
Any settlement with Rohm & Haas is almost certain to require Dow to pay billions of dollars that it can ill afford, analysts say. Its business is struggling amid weak demand for its chemicals.
Even the company's treasured dividend is suddenly at risk, Mr. Liveris conceded this week, after insisting as recently as December that it would not be cut "on my watch."
Shares of the Midland, Mich., company rose 25 cents, to $13.44, in 4 p.m. trading Wednesday on the New York Stock Exchange. Its dividend yield has soared above 12%, compared with a yield of about 4% last May when shares were more than $42.
"They've been very unlucky," says Hassan Ahmed, analyst with HSBC. "They're caught between a rock and a hard place."
Just last year Mr. Liveris was promoting the Kuwait and Rohm & Haas deals as key to transforming the 112-year-old company from a producer of low-margin commodity chemicals and plastics into a high-tech star.
Many of Dow's industrial plants were to be sold to a joint venture with state-owned Kuwait Petroleum Corp. Money from that sale would be used to help finance a merger with Rohm & Haas, a Philadelphia manufacturer of specialty chemicals and electronic components.
Kuwait's parliament forced the state oil company to back out of the joint venture just before New Year's Day. Stunned by the reversal, Mr. Liveris said he might try to sue for breach of contract.
Kuwait's parliament fired back on Monday, the state-run news agency said. A committee was set up to probe "highly-controversial issues, notably" the Dow deal and whether it involved "irregularities, fraud, or bribe-taking." Kuwaiti officials couldn't be reached for comment.
Dow declined to comment on the report, and didn't respond to debt-rating agency Moody's Corp., which reiterated Wednesday the company's credit rating is at risk because of the Rohm & Haas deal.
Dow had been counting on $9 billion from its Kuwait venture to help pay for the merger. The iron-clad deal with Rohm & Haas does not allow it to back out, for example, if it lost its financing.
Dow had arranged a one-year, $13 billion bridge loan from a consortium of banks, but the credit crisis and its own deteriorating financial picture made using that loan unpalatable and refinancing it very expensive, analysts say.
If Dow uses that loan to complete the purchase of Rohm & Haas, it must come up with "a very detailed refinancing plan that entails very little execution risk in order to maintain an investment-grade rating," Moody's said on Wednesday. Dow also faces a credit-rating downgrade if it is forced to pay billions to walk away from the deal, Moody's analyst John Rogers said.
Mr. Liveris doesn't have much time to figure out a solution to the company's problems. A trial is set to begin March 9 on Rohm & Haas's lawsuit asking a judge to force Dow to live up to its merger agreement.
Write to Ana Campoy at ana.campoy@dowjones.com and Leslie Eaton at leslie.eaton@wsj.com
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