InterviewForced R&H merger would hurt new company - Dow lawyer

04 February 2009 20:32  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Dow Chemical should not be forced to complete its merger with Rohm and Haas as the resulting entity would be severely impaired, Dow’s lead litigator said on Wednesday.

“This is a contract that as a result of some very unique circumstances, at this point in time, cannot and should not be performed because it fails on its essential purpose, which is to create a combined entity that would have financial health and create value through synergies,” said David Bernick, Dow’s lead litigator with law firm Kirkland & Ellis, in an interview with ICIS news.

“Dow is looking to see whether a merger can be done, but that will take some time and we would hope that Rohm and Haas would discuss that with us on a cooperative basis. But now there is just too much uncertainty about the financing and the consequences of the financing to allow the deal to go forward,” he added.

On 10 July, Dow agreed to acquire Rohm and Haas for $78/share, or $18.8bn (€14.5bn), including the assumption of debt. However, on 26 January, Dow said it would not close the deal on deadline.

Rohm and Haas filed a lawsuit in Delaware Chancery Court on 26 January, seeking “specific performance” from Dow, meaning a closing of its planned merger with Rohm and Haas. The trial is set to begin on 9 March.

Dow is not arguing that the merger agreement with Rohm and Haas is not valid. Rather, it is arguing that it should not be forced into a merger that would be detrimental to the combined company and its employees.

“The contract is certainly relevant, but it requires the court to engage in a very special inquiry about whether that power [of specific performance] should be used here, recognising what the consequences would be,” said Bernick.

“Rohm and Haas shareholders would get a bunch of money, and every dollar that gets spent on that comes at the expense of the financial health of the very merger they’re ordering,” he added.

If Dow were to draw on its committed $13bn bridge loan close the merger today, it “would likely be in default of that bridge loan in fairly short order,” said Bernick.

Dow is renegotiating the terms of that bridge loan with lenders, he added.

If Rohm and Haas were to win its case in Delaware Chancery Court, Dow would appeal to Delaware Supreme Court, and an ultimate decision could be made within “a matter of weeks,” said Bernick.

Responding to concerns that an adverse ruling to Rohm and Haas could put all merger agreements in question, Bernick said that should not come into play.

“The in terrorem [Latin for: in order to frighten] argument that you should be terrified of the consequences of a ruling is always used to invoke adherence to a rule in a fairly rigid way, but that’s just not how the law works,” he said.

“The whole reason there is an equity [Chancery] court is precisely to deal with matters where the contract, by its terms, may not work the correct result,” said Bernick.

($1 = €0.77)

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By: Joseph Chang
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