Dow Chemical moves to Plan B

A month ago, after the collapse of the K-Dow deal, the blog suggested that Dow would need to move quickly to a Plan B. It added that “nobody would be very surprised if it now sought to renegotiate the proposed Rohm & Haas acquisition”. This now seems to be underway, judging by two pieces of evidence:

• An interview with Dow’s CEO, Andrew Liveris, in the Wall Street Journal (WSJ) where he says that Dow are “unable to complete the deal without stable financing”.
• An analysis by the New York Times’ (NYT) legal expert that suggests “Dow is worried about compliance with its $13bn bridge facility (and)…is using this worry to attempt to force Rohm to the table”.

The issue is one of leverage. The Bridge facility has a covenant that requires Dow to maintain its Total Leverage Ratio below 4.25: 1.00, if Dow’s debt ratings reduce to a certain level (BBB- from S&P, for example). At the moment, S&P rates Dow just one notch above this at BBB, but the NYT notes that “more downgrades” are possible.

At this point, the NYT suggests Dow “conceivably gains a solvency argument” to use in any negotiations with R&H. Was Liveris preparing the ground for this, when he told the WSJ, “Why would you put two more American companies at risk in this most horrible of markets?”

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to Dow Chemical moves to Plan B

  1. Paul Ray 30 January, 2009 at 3:06 pm #

    Would you be prepared to venture a punt on where this may end? Clearly the R&H deal was inspired when the world was a very different place and it was most unreasonable to think of K-Dow tripping up at the finishing line. I can’t find the right words, but one might say ‘once is unfortunate, but twice is……..’

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