Rohm and Haas stock falls as arbs disappointed

06 January 2009 22:03  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Shares of Rohm and Haas fell sharply in Tuesday afternoon trading as arbitrageurs were disappointed on Dow Chemical’s vagueness about its planned $18.8bn (€13.9bn) acquisition of Rohm and Haas, said sources in the financial community on Tuesday.

Shares of Rohm and Haas were down $3.70, or 5.8% to $60.12 in late afternoon trading on the New York Stock Exchange

“Our take on Dow’s press release is that it is negative in its vagueness as to Rohm and Haas. Yet they haven’t sunk the ship and are keeping their options open,” said one arb investor.

“We had hoped that Dow would have put out more positive news and expressed continued commitment to and enthusiasm for its acquisition of Rohm and Haas,” he added.

Arb investors typically buy the stock of a target company prior to closing of the deal to earn money on the difference between the stock price and the agreed-upon sale price.

There was no mention of Rohm and Haas itself in Dow’s press release on Tuesday, although Dow did say it was committed to its “transformational corporate strategy”.

Dow later said in a statement to ICIS that “Rohm and Haas is a strategic fit for Dow and consistent with our strategy.”

“The announcement today was a total disappointment. “People were expecting a consistent public message or plan of action. Instead they said nothing,” said another arb.

“We don’t see how [Dow CEO] Liveris can maintain an investment-grade rating and its dividend, without getting a significant price cut from Rohm and Haas,” he added.

Dow is pursuing legal options against Kuwait’s Petrochemical Industries Co. (PIC) for pulling out of their planned $17.4bn K-Dow Petrochemicals joint venture, which was supposed to close on 2 January.

Dow would have received $7.5bn in cash from PIC, as well as a $1.5bn cash distribution from K-Dow upon completion.

While the Rohm and Haas acquisition is not contingent upon the closure of K-Dow, it would have gone a long way to fund the deal. Dow is looking for another joint venture partner for its basic plastics business.

Investors also held out hope that the Kuwait Investment Authority (KIA) could kick in more than its earlier-announced $1bn in equity to the Rohm and Haas deal, as part of a government settlement with Dow, said one arb.

“There was some residual hope on a settlement involving a bigger investment from Kuwait on Rohm and Haas, but this was a long shot,” he said.

Along with the $1bn in funding from the KIA, legendary investor Warren Buffet planned to invest $3bn in the Rohm and Haas deal. Both parties would receive Dow convertible preferred stock.

Dow also has a commitment from banks for a 1-year, $13bn bridge loan.

Regulatory approval on the Dow-Rohm and Haas deal from the European Commission is expected on Thursday, 8 January, said sources, with the US Federal Trade Commission giving its approval later this week or early next.

In July 2008, Dow agreed to pay $78/share for Rohm and Haas.

($1 = €0.74)

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By: Joseph Chang
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