US Dow may cut dividend, issue equity - Deutsche Bank

06 February 2009 17:17  [Source: ICIS news]

HOUSTON (ICIS news)--US major Dow Chemical will likely make a $3bn-6bn (€2bn-5bn) equity offering and cut its dividend by at least 50% if it plans to close its $18.8bn merger with Rohm and Haas, Deutsche Bank said on Friday.

Dow had missed a 27 January deadline to close the merger, leading to a lawsuit filed by Rohm and Haas, which wants the Delaware Chancery Court to order the immediate closing of the merger. A trial is scheduled for 9 March.

Dow had planned to fund the merger with the proceeds from another deal, the failed K-Dow Petrochemicals joint venture it was to form with Petrochemical Industries Co (PIC) of Kuwait. Under the joint-venture agreement, Dow was to receive $7.5bn from PIC and a $1.5bn cash distribution from K-Dow Petrochemicals.

With K-Dow out of the picture, Dow needs to close a $9bn hole if it wishes to close the merger with Rohm and Haas, according to a research note by Deutsche Bank. Dow could fill the hole through another joint venture, but the closing for such a deal could be too late to fund the Rohm and Haas merger, Deutsche Bank said.

Another constraint comes from Dow's commitment to preserve its investment-grade status, Deutsche Bank said.

To close the merger while preserving its ratings, Dow will likely cut its dividend by at least 50% during a board meeting scheduled for next week, Deutsche Bank said.

The date of the board meeting could not be confirmed, since Dow does not publish the dates.

On top of the dividend cut, Dow may also sell a significant amount of equity, possibly $3bn-6bn, the bank said.

Such a large offering would be highly dilutive, since Dow's market capitalisation is $10.5bn, Deutsche Bank said.

In a statement, Dow spokesman David Winder said: "Decisions related to the dividend are determined quarterly by the board of directors. We have no announcement at this time."

However, Dow CEO Andrew Liveris had said that the company would consider cutting its dividend to preserve its investment-grade status.

The scenario portrayed by Deutsche Bank resembles one outlined by Paulson & Co, the second largest shareholder of Rohm and Haas.

Paulson sent a letter to Dow, recommending that the company issue equity and reduce its dividend to 1 cent/share.

Dow declared a 42 cent/share dividend on 11 December.

($1 = €0.78)

For more on Dow or Rohm and Haas visit ICIS company intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Al Greenwood
+1 713 525 2645

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