Renegotiated deal likely for Dow, Rohm and Haas – analysts

26 January 2009 22:19  [Source: ICIS news]

NEW YORK (ICIS news)--Dow Chemical and Rohm and Haas will likely renegotiate their merger agreement to a lower price, said Wall Street analysts on Monday.

“We do continue to believe that the most likely scenario is a negotiated compromise of around $50/share [€39/share],” said Oppenheimer analyst Edward Yang in a research note.

That $50 price represents 22 times Yang’s estimated 2009 earnings/share number for Rohm and Haas – in line with Dow’s original offer multiple and “roughly a 100% premium to Rohm and Haas’s stand-alone value”, he added.

Dow had agreed to buy Rohm and Haas for $78/share back in July 2008. Including the assumption of debt, the value of the deal on its original terms was $18.8bn.

However, Dow announced earlier today that it would not close its planned acquisition of Rohm and Haas by 27 January - the date required for closing in the terms of the merger agreement.

“It appears Dow was trying to renegotiate the $78 deal price, and Rohm and Haas was unwilling to lower the price,” said Citi Investment Research analyst PJ Juvekar in a research note.

Yang said: “Rohm and Haas has a very tight merger agreement, but that does not change the math, and pro forma leverage of Dow/Rohm and Haas could look quite frightening depending on how quickly EBITDA [earnings before interest, tax, depreciation and amortization] melts away in 2009.”

While conventional wisdom is that Rohm and Haas holds all the cards, this is oversimplifying things, Yang said. "Once a company puts itself up for sale, there’s no turning back - Rohm and Haas needs this deal to close and could be somewhat flexible,” he added.

Juvekar said: “Although we believe the deal can still close, Dow’s management and board seem unwilling to commit to the previous $78 acquisition price.”

Frank Mitsch, an analyst with BB&T Capital Markets, said: “At this point, it is uncertain as to which news will hit the tape first - whether Dow’s acquisition of Rohm and Haas will in fact go through or if Brett Favre will return to the [New York] Jets next season. We are banking on the latter.”

($1 = €0.77)

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By: Joseph Chang
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