Dow needs to negotiate to delay Rohm and Haas close – Moody’s

28 January 2009 21:07  [Source: ICIS news]

NEW YORK (ICIS news)--Dow Chemical may need to negotiate a formal agreement with Rohm and Haas to delay the closing of the deal, especially if the court indicates it will act quickly in the case, Moody’s Investors Service analyst John Rogers said on Wednesday.

The Delaware Chancery Court, where Rohm and Haas filed its lawsuit against Dow on 26 January, has set a trial date of 9 March.

“I believe it is fiscally prudent for Dow to delay the merger with Rohm and Haas until they have delineated the specific sources for the refinancing of the $13bn bridge loan,” said Rogers, the head of the chemical group at Moody’s, in a research note.

“However, the unilateral action by Dow does expose it to a moderate degree to additional liability and may not provide sufficient time to resolve its refinancing sources prior to a court decision.

“Hence, Dow many need to negotiate a formal agreement with Rohm and Haas on delaying the close of the transaction, especially if the court indicates that it will respond to the complaint quickly,” Rogers added.

Dow has financing commitments for a $13bn (€9.9bn), bridge loan from Citigroup, Merrill Lynch and Morgan Stanley which expire on 8 July.

However, in today’s tumultuous credit markets, companies cannot simply assume they can refinance a large bridge loan on adequate terms, if at all.

The bridge loan would mature on 14 April, 2010, noted Rogers.

If Dow were to close the Rohm and Haas deal, it would need to provide a “very detailed refinancing plan that entails very little execution risk in order to maintain an investment-grade rating,” said the analyst.

In addition, Dow would need more flexibility in its loan covenants to have a low risk of breaching those covenants in the next two-to-three years, said Rogers.

“Additionally, Moody’s pro forma projections for the combined company’s financial performance would need to be at or very close to investment-grade metrics within 12-18 months after the closing, along with a high degree of certainty that additional deleveraging events could occur within the next 12 months,” he added.

Moody’s currently has a “Baa1” (S&P equivalent of BBB+) rating on Dow Chemical, which is two notches above the minimum investment grade rating.

Shares of Dow Chemical were up $0.20, or 1.5%, to $13.39 in Wednesday afternoon trading. However, they are down 69% from their 52-week high of $43.43 reached in May 2008.

On Tuesday, CNBC commentator Jim Cramer, Host of the television show Mad Money, put Dow CEO Andrew Liveris on its “Wall of Shame”.

“Dow Chemical’s Andrew Liveris may be the single worst CEO to ever run a major company – into the ground,” Cramer said on his Mad Money show.

“He took a blue-chip name and turned it into a bad joke,” Cramer added.

($1 = €0.76)

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By: Joseph Chang
+1 713 525 2653

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