Dow Chemical's botched M&A experiment

Posted Jan 27th 2009 11:10AM by Tom Taulli
Filed under: Deals, Law, Dow Chemical (DOW)

Back in July, Dow Chemical Co. (NYSE: DOW) agreed to pay $15.4 billion for Rohm & Haas Co. (NYSE: ROH), a top specialty chemicals operator. At the time, it looked like a sign that confidence was coming back into the system.

But, of course, the smart money was proved wrong – once again -- as the deal fell apart. So, this week Rohm & Haas has filed a suit against Dow to force the deal to happen. You see, the deal was supposed to close Monday.

The legal action rattled investors: On Monday, Dow's stock fell 7.61% to $13.24 and Rohm & Haas' stock was down 13.25% to $57.10.

Not surprising, Dow says that it's having some trouble raising the funding for the transaction. Although, the big problem was when the Kuwaiti government pulled out of its mega joint venture with the company, which happened last month. The deal would have provided Dow with a much-needed $9.5 billion cash infusion.

Oh, and with the slowdown in the global economy, the chemicals industry is plunging at an alarming rate. In fact, a variety of companies in the sector have filed for bankruptcy.

However, the fact remains that Rohm & Haas negotiated a solid contract. Simply put, Dow has no right to undue the deal because of problems with financing. All in all, this is going to make for an interesting court case.

For investors, though, things are dicey. As seen so far, the overhang of uncertainty often means lots of volatility. Thus, for long-term investors, it's probably best to stay on the sidelines.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a free online business valuation tool for small businesses.

Tags: dow, inthenews, Mergers, roh, rohm and haas, RohmAndHaas

Print this

Reader Comments (Page 1 of 1)

1-27-2009 @ 1:37PM

Kent said...

This event is in stark contrast to the successful conclusion of the buy out of Anhauser Busch by InBev last December. I thought for sure, InBev would be backing out of the deal due to some of the reasons cited by Dow Chemical about available funding. It isn't easy to buy growth these days; probably better to develop growth instead, during times of our economic malaise.