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Dow Chemical to buy Rohm & Haas in legal settlement
2009-03-09
NEW YORK (AFP) - The Dow Chemical Company will complete its takeover of Rohm & Haas next month in a legal settlement that provides Dow with up to three billion dollars in new cash, the companies said Monday. Dow Chemical, the largest US chemical maker, is to acquire Rohm & Haas for the price originally announced in July, 78 dollars a share, which values the Philadelphia, Pennsylvania-based specialty chemicals maker at 18 billion dollars. But the settlement effectively lowers the price tag after Rohm & Haas agreed that its two largest shareholders would inject at least 2.5 billion dollars into the struggling Dow. "Today's agreement resolves the litigation initiated by Rohm & Haas against Dow on January 26, 2009 with a resolution that is beneficial for each party," the companies said in a joint statement. Rohm & Haas filed suit against Dow after the chemical giant said it was unable to proceed with the acquisition. Announced in July at more than 18 billion dollars, the takeover deal hit turbulence after Kuwait's state-owned Petrochemicals Industries in December scrapped a joint venture with Dow that would have netted the US firm 7.5 billion dollars, citing unfavorable economic conditions due to the global financial crisis. Dow subsequently said it could not meet a January 27 deadline for its takeover of Rohm & Haas, citing "unacceptable uncertainties" on financing. Under the terms of the settlement deal, the two largest shareholders in Rohm & Haas have agreed to inject up to three billion dollars into the Midland, Michigan-based company by buying preferred and convertible stocks. "The settlement agreement involves a new substantial equity investment in Dow of 2.5 billion dollars and at Dow's option an additional 500 million dollars of equity, at the closing of the merger by the two largest shareholders of Rohm & Haas," the companies said. The statement identified Haas Family Trusts, the company's founding family, as one of the shareholders. The second shareholder is the Paulson hedge fund. Billionaire Warren Buffett's holding firm Berkshire Hathaway is to invest three billion dollars into Dow and Kuwaiti holding KIA will invest an additional one billion dollars. The other shareholders were to receive "the original cash consideration." The merger with Rohm & Haas will allow Dow to develop in the specialty chemicals sector, with its healthy profit margins and relative resilience to economic cycles. In a conference call with analysts, Dow executives would not say if Rohm & Haas employees would be taken on board. But they emphasized the company would remain in close contact with ratings agencies, which might look askance at a transaction requiring Dow to find an additional eight-billion-dollar loan, after losing 1.5 billion dollars in the 2008 fourth quarter. To help finance the deal, Dow plans to raise some four billion dollars in asset sales, in particular its 45 percent stake in a Dutch refinery operated jointly with French company Total. Dow also intends to sell certain petrochemical businesses in Southeast Asia as well as its salt business, Morton Salt. Both companies said that at their request, the Delaware court has ordered the merger will close no later than April 1. The deal will cost more jobs than initially announced, with a 3,500 headcount reduction announced Monday, in addition to the 6,500 previously announced by the two firms: 5,000 for Dow and 1,500 for Rohm & Haas. Dow said the merger would generate at least 900 million dollars in savings that could reach 1.3 billion dollars. A salary freeze was expected to generate 200 million dollars and spending will be cut more than half from 2008 levels, to 1.1 billion dollars from 2.3 billion. "The restructuring of the terms of the transaction allows Dow to maintain financial flexibility as we proceed to implement our strategy in a way that realizes the original promise of this acquisition," said Andrew Liveris, Dow chairman and chief executive, said in the statement. Raj Gupta, chairman and CEO of Rohm and Haas, said the agreement "delivered excellent value" to his shareholders. The New York Stock Exchange suspended trading in their shares around 1830 GMT, citing an imminent announcement. Dow Chemical lost 11.11 percent at 6.32 dollars and Rohm & Haas surged 17.41 percent to 74.91.
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