Sunday, December 28, 2008

The next failed merger: Rohm & Haas

Say goodbye to Dow Chemical's supposedly "airtight" merger with Rohm & Hass. In July, Dow agreed to acquire Rohm & Hass in a $15.3 billion dollar buyout. $3 billion was coming from Berkshire Hathaway, and $1 billion from Kuwait, and a purchase price of $78.
http://www.iht.com/articles/2008/07/10/business/dow.php

Put this deal on the scrapheap of failed M&A.

Kuwait had previously announced a $7.5 billion joint venture with Dow Chemical that was to start January 1. Since then, however, oil prices have been crushed, and so as the Kuwait stock exchange, and there was huge political resentment against the deal.

So Kuwait backed out.

Kuwait's government Sunday pulled out of a $17.4 billion joint venture with U.S. petrochemical giant Dow Chemical Co. after criticism from lawmakers that could have led to a political crisis in this small oil-rich state.

The cabinet, in a statement carried by the state-owned Kuwait News Agency, said the venture, known as K-Dow Petrochemicals, was "very risky" in light of the global financial crisis and low oil prices. The move came just days before the Jan. 1 startup date for the joint venture.
http://online.wsj.com/article/SB123048565197437817.html?mod=testMod

The collateral damage is Rohm & Hass. That deal is now over, no matter how "air tight" the merger agreement with Dow Chemical was.

It will be just another footnote on another failed deal, in a credit squeezed recessionary environment, that will crush another arbritrage fund.

This time, it will burn Paulson & Co., who just announced they were picking up the pieces of carved up IndyMac, after the taxpayer already footed $8.9 billion of losses. They owned almost 15 million shares of ROH, which means they'll lose more than a few hundred million dollars.

Paulson & Co. went to bed Saturday night, thinking they had gotten one over on the taxpayer. They didn't know that Kuwait had a surprise in store for them today!

It looks like Paulson's arbritage fund was "yahooed" again!

10 comments:

Anonymous said...

What has brought you to this conclusion? The terms of the deal are clearly different, and other commentators (e.g. Deal Professor from NYT) believes that Dow will have to close because it is sufficiently capitalized to get the deal done, there is no finanicing out and a Hell or High water provision regarding regulatory approvals.

Anonymous said...

I agree entirely with Anonymous #1, and am quite surprised at the number of folks who offer opinion without even looking at the sales agreement. The ROH-DOW deal was basically complete on July 10. Dow bought ROH then - they just needed reg approval and some time to come up with the money; they apparently already had a fallback to K-DOW with the pre-approved bridge loan. What has happened between July 10 and now is unfortunate, but it does not change this deal one bit.

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