Dow and Rohm & Haas reached an eleventh hour agreement that will finally see the chemicals giant go ahead with its acquisition rather than face off Rohm & Haas in court. The deal is scheduled to close on 1 April. The terms of the settlement involve a new investment in Dow of US$2.5 bln and, at Dow's option, an additional US$500 mln by the two largest shareholders of Rohm and Haas - the Haas Family Trusts and Paulson & Co. The other shareholders will receive the original cash consideration of US$78 per share.
USA's largest chemical maker Dow Chemical Co. will use asset sales, job cuts and new debt to try to maintain investment-grade credit ratings after paying for Rohm & Haas Co. Dow plans to raise about US$4 bln from selling assets, including at least US$1.5 bln from Rohm & Haas's Morton Salt unit. Dow will issue US$4.3 bln of debt and cut costs by US$400 mln more than previously estimated, partly by eliminating an additional 3,500 jobs. The estimated 10,000 job losses will include the previously announced 5,000 Dow and 1,500 Rohm and Haas position losses. At least 10 plants will close due to the merger. The buyout should have no effect on Texas Operations in the form of job realignment or plant closures. Dow's Freeport facility is the largest petrochemical site in North America.
The two largest shareholders get equity that cuts Dow's cash cost by as much as US$3 bln and contributes to a 7.8% higher deal price of US$16.5 bln.
Under the revised accord, which is set to close on April 1, Dow will pay a so-called ticking fee of US$100 mln a month from Jan. 10 to closing, contributing to the higher deal price. The Haas family trusts and Paulson Co., the largest shareholders will exchange some of their stock for US$2.5 bln in preferred Dow shares, and the Haas family may take an additional US$500 mln in equity at Dow's discretion. Interest payments on the preferred shares will reduce annual earnings by as much as 20 cents a share compared with debt financing.
Dow will need to draw only $9.5 billion of a US$12.5 bln bridge loan to finance the deal because of the latest equity investments. In addition, Dow has a US$3 bln equity investment from Warren Buffett's Berkshire Hathaway Inc. and a US$1 bln investment by the Kuwait Investment Authority. By June, the issuance of long term debt will help cut the bridge loan to US$4 bln, and asset sales will help Dow repay the entire amount within a year.
Dow is pursuing more than US$2.5 bln in restitution through arbitration from Kuwait's Petroleum Industries Co. for backing out of an agreement to buy a 50% stake in the basic plastics unit. Dow isn't aggressively pursuing damages against the nation in case it wants to restart the aborted K-Dow joint venture.