Dow could walk from Rohm deal ‘cash positive’ – HSBC

30 December 2008 18:36  [Source: ICIS news]

TORONTO (ICIS news)--Dow Chemical may be able to walk away from its takeover of Rohm and Haas “net cash positive” after Kuwait cancelled the K-Dow joint venture, analysts at HSBC said in a research note on Tuesday.

“Dow could potentially take the proceeds of the Kuwaiti break-up fee, pay Rohm to break the deal, and still walk away with more than $1.2bn (€852m) in cash,” the London-based international bank said.

According to HSBC, Dow could get a break-up fee of about $2bn from Kuwait while it would have to pay $750m should it break the Rohm and Haas deal.

“While the deal cancellation with Kuwait and, in turn, a potential deal cancellation with Rohm and Haas, would be a major setback to [Dow CEO Andrew] Liveris’ portfolio transformation plan, on the margin, it may be positive for Dow stock, while a negative for Rohm stock, as Dow would still walk away with a clean balance sheet,” said HSBC.

Dow investors would likely welcome either a complete cancellation of the Rohm deal, leaving Dow with a net cash positive position, or, alternatively, a renegotiation of the Rohm deal at a lower price so that it would become accretive from year one, the bank added.

However, industry observers said Dow may not seek to get a break-up fee from Kuwait – which could be as high as $2.5bn, according to some reports - as it was keen to maintain good business relations in the oil and gas rich Persian Gulf region.

Also, Dow would have to prove in court that Kuwait broke the deal, they said.

In a comparable case, US petrochemicals producer Huntsman this month pocketed $1bn from private equity firm Apollo after Apollo pulled out of a deal to take over Huntsman and merge it with Hexion Specialty Chemicals.

HSBC, for its part, remains “overweight” on Dow Chemical with a share price target of $30.00, based on an attractive valuation and a dividend yield of over 8% which Dow was not likely to cut, it said.

Dow's stock was up 0.78% to $15.44 on Tuesday in New York after falling 19% on Monday.

Meanwhile, Rohm and Haas' shares were up 9.86% to $58.6 on speculation that Dow would be forced to go through with the takeover deal.

($1 = €0.71)

For more on Dow Chemical and Rohm and Haas visit ICIS company intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Stefan Baumgarten
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