US Dow faces uphill battle in court - arbs

26 January 2009 21:35  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Dow Chemical faces an uphill battle in court if it fails to reach an agreement to close its planned acquisition of Rohm and Haas, sources in the financial community said on Monday.

“It looks like more than an uphill battle for Dow - they don’t seem to have a legal leg to stand on,” said one analyst in the arbitrageur (arb) community.

“It appears Rohm and Haas was willing to give Dow time, but wanted assurances that Dow could close by 30 June. But Dow CEO [Andrew] Liveris refused to agree on that timetable,” he added.

Rohm and Haas filed a lawsuit in Delaware court earlier on Monday, pushing for the completion of the deal on the original terms. The US Federal Trade Commission (FTC) approved the acquisition on Friday, 23 January, clearing the way for the deal to close, between the two US-based companies.

In the lawsuit, Rohm and Haas claimed that Dow CEO Andrew Liveris and Rohm and Haas CEO Raj Gupta met on January 19 to discuss the merger.

“Mr. Liveris requested that Dow be given until June 30, 2009, to close the Merger. Mr. Liveris refused, however, to commit that at the end of that time Dow would close,” according to the lawsuit.

“They tried to negotiate on time as well as price, but it obviously didn’t work. I think Rohm and Haas took a hard line,” said another arb.

Monday’s announcement that Dow would not close the acquisition of Rohm and Haas by 27 January took investors by surprise, said the arb.

On Friday, 23 January, Dow and Rohm and Haas issued a joint press release announcing that the FTC had cleared the deal and that they were “discussing the closing of the transaction contemplated by their pending merger agreement”.

“When everyone saw the Friday press release, they were quite bullish that the deal would close - it was their first joint press release, and people thought they would negotiate something, whether it was timing or price or both,” said the arb.

Shares of Rohm and Haas plunged by $10.57, or 16.1%, to $55.25, in early Monday afternoon trading.

However, arbs are clearly expecting some deal to occur. “If the deal were completely off, the stock would be something like $25,” one arb said.

Arbs, who attempt to make profits on the spread between a stock’s traded price and the agreed-upon acquisition price prior to closing, have piled into Rohm and Haas stock since the Dow’s $18.8bn (€14.5bn) acquisition of the US-based specialty chemical firm was announced in July 2007. The deal price includes the assumption of debt.

($1 = €0.77)

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By: Joseph Chang
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