UpdateRohm and Haas shares rebound on takeover pressure

30 December 2008 23:57  [Source: ICIS news]

Dow Chemical under pressure(Adds updates throughout)

HOUSTON (ICIS news)--A day after Rohm and Haas’ stock took a 16% hit, shares rebounded 11.92% on Tuesday to $59.70 on speculation that the Philadelphia-based company may still be bought by Dow Chemical.

Dow’s share price on the New York Stock Exchange inched up slightly on Tuesday to $15.55, an increase of 1.5%, after losing 19% on Monday in the wake of the demised K-Dow deal and debt rating reductions by Moody’s and Standard and Poor’s.

Dow is under pressure to quickly make a final decision regarding the planned $18.8bn (€13.3bn) acquisition of Rohm and Haas following the collapse of the K-Dow joint venture with Kuwait’s Petrochemical Industries Co.

The K-Dow joint venture would have provided $9bn in cash payments to Dow, including a planned $1.5bn distribution from K-Dow.

The acquisition of Rohm and Haas and the lack of cash from the failed K-Dow venture would put Dow under a huge amount of debt, analysts have noted. 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.

Dow is under pressure to act quickly. Under its agreement with Rohm and Haas, the buyout price of $78/share will rise each day that Dow does not sign off on the acquisition after 10 January.

However, Dow may still be able to walk away from its takeover of Rohm and Haas “net cash positive,” analysts at HSBC said in a research note.

“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.

HSBC, for its part, remained “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.

($1 = €0.71)

Additional reporting by Stefan Baumgarten, Joseph Chang and Brian Ford

For more on Dow Chemical and Rohm and Haas visit ICIS company intelligence
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By: Ryan Hickman
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