Dow acquisition will boost debt by $5bn - Moody’s

11 July 2008 07:16  [Source: ICIS news]

SINGAPORE (ICIS news)--Dow Chemical’s planned acquisition of specialty chemicals producer Rohm and Haas will lead to an increase in its debt by $5bn (€3.15bn), said Moody’s Investors Services on Friday.

This additional amount was apart from the over $4bn in convertible preferred securities that it would issue to Berkshire Hathaway and Kuwait Investment Authority (KIA), it added.

"After the cash received from the formation of the Petrochemical Industries Co (PIC) joint venture and the investment by Berkshire and KIA, up to $5bn of additional debt is still required, excluding the potential refinancing of the Rohm and Haas’ debt," the international credit rating agency said.

Dow had said in an earlier statement that Citi, Merrill Lynch and Morgan Stanley, which had acted as financial advisors for the transaction, had committed the required debt financing.

"I find it peculiar that they have chosen such a point in time to execute this acquisition especially in the midst of the credit crunch. But since they have the backing of three really large players for the debt portion, this deal might be worth while," said an analyst when asked of the debt financing required in the transaction.

The companies were currently targeting to complete the acquisition by early 2009.

The acquisition was expected to deliver pre-tax annual cost synergies of $800m/year through increased purchasing power for raw materials; manufacturing and supply chain work process improvements; the elimination of redundant corporate overhead for shared services and governance, Dow said in a statement.

"The increased stability in earning and cash flow and the higher potential growth rate of the combined entity should partially offset the negative impact from the increase in debt," said John Rogers, Senior Vice President at Moody’s.

"In addition, Dow’s vertical integration and size should provide meaning synergies to the combined entity."

Moody’s has placed Dow Chemicals as well as Rohm and Haas under review for downgrade.

The acquisition will create the world's largest specialty-chemical company with combined specialty sales exceeding $30bn per annum, or two-thirds of the company's total, Moody’s said.

($1 = €0.63)

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By: Bohan Loh
+65 6780 4359

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