29 December 2008 23:53 [Source: ICIS news]
(Adds Standard and Poor’s, Moody's downgrade, stock closings in paragraphs 9-13)
“Cancellation of K-Dow could compromise Dow’s ability to close its pending acquisition of Rohm and Haas, a key element of Dow’s strategic plan, although neither that deal nor related financing is contingent upon closing of K-Dow,” said Bank of America analyst Kevin McCarthy in a research note.
On 1 December, US-based Dow Chemical finalised its K-Dow commodity chemical joint venture agreement with
Dow could file an arbitration claim for up to $2.5bn for the break-up of the deal in
On 2 December, Dow chairman and CEO Andrew Liveris said the company would not renegotiate the terms of its deal with Rohm and Haas. In July, Dow agreed to pay $78/share for Rohm and Haas, a premium of 74% over its previous price of $44.83.
Without the cash from the K-Dow deal, Dow would be highly leveraged if it were to complete its acquisition of Rohm and Haas, noted McCarthy.
If Dow completed the Rohm and Haas deal on its original terms, the company would have net debt of up to $29.6bn, representing a leverage ratio of 4.5x estimated 2009 earnings before interest, tax, depreciation and amortization (EBITDA), McCarthy projected.
The merger arbitrage spread on Rohm and Haas has widened to $27.81, or 55.4%, indicating growing scepticism among investors that the deal will go through on the original terms, if at all.
The K-Dow collapse prompted Standard & Poor's (S&P) to pull down Dow's corporate credit and senior unsecured ratings from A-minus to BBB while its long-term ratings remained on S&P's CreditWatch with "negative implications".
"This decision was unexpected given Dow's recent confidence that it would close the transaction, and is a significant development from both a strategic and financial profile standpoint," said Standard & Poor's credit analyst Kyle Loughlin.
Moody's Investor Service lowered Dow's senior unsecured ratings to Baa1 from A1.
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