Dow Chemical (DOW) is raising $1.63 billion by selling common stock. But it really needs more money than that. Perhaps in the current credit market the interest rate it would have had to pay on debt was simply too much.
Reportedly, $1 billion will be used to reduce debt it is taking on to buy rival Rohm and Hass. But the total purchase price of the transaction is $16.5 billion. Dow tried to get out of the deal. The margins in the chemical industry were ruined by the recession, but the document it signed with Rohm & Hass was airtight. Dow will almost certainly end up overpaying and will be burdened with a mammoth debt load in the process.
During its last earnings call, Dow management said it did not expect any economic recovery this year. That will make the risk of carrying such a large debt greater, especially in light of the company's results for the last quarter. Net income was only $24 million compared with $941 million in the first quarter of 2008.
The news about the program to bring in the additional money moved the stock down three percent after hours. It clearly adds to a long list of things that make the company's investors unhappy.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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