M&A

Rohm & Haas Sues Dow over Deal Delay

The $15.3b merger seems in jeopardy, so Rohm takes the chemical giant to Delaware Chancery Court.
Stephen TaubJanuary 26, 2009

Rohm & Haas sued Dow Chemical over Dow’s indicated decision to break off their planned $15.3-billion merger, with Rohm & Haas asserting that “all conditions to Dow’s obligation to close” the deal have been satisfied.

Rohm asserts in the lawsuit, filed in Delaware state Chancery Court, that Dow was obligated to close the deal by Tuesday, after the Federal Trade Commission last Friday voted to clear the deal.

“Dow never asserted prior to January 23 that any other condition remained to be satisfied and, in particular, never claimed that Rohm and Haas had suffered a ‘Material Adverse Effect’ in its business,” Rohm states in its lawsuit.

Dow said in a press release on Monday morning it had determined that recent material developments have created “unacceptable uncertainties on the funding and economics” of the combined enterprise. It added that the assessment is based on several macro-economic factors such as the continued crisis in global financial and credit markets combined with the “dramatic and stunning” failure of Petrochemicals Industries Company of Kuwait (PIC) to fulfill its obligation to complete the formation of the K-Dow joint venture in late December 2008.

“Our long term strategy remains unchanged and the proposed acquisition of Rohm and Haas is consistent with this strategy,” said Dow chairman and CEO Andrew N. Liveris. The company added the since Dow learned in late December of PIC’s failure to close the K-Dow transaction, Dow has aggressively sought ways “to enable” the Rohm and Haas transaction. “Dow remains interested in discussions to find a solution to complete the acquisition of Rohm and Haas, but recent events have made closing untenable at this time,” Dow added in its press release.

At the same time, Liveris asserted that the world has changed significantly and Dow does not see the bottom “of this unprecedented demand destruction,” which he said only accelerated through the fourth quarter and brought December operating rates to historic lows. “The company’s commitment to remain financially strong is part of the DNA of this 112-year old company,” he added.

Representatives of Dow didn’t immediately return a call seeking comment about the Delaware Court filing by Rohm & Haas.

Rohm alleges in its lawsuit that Liveris told Rohm and Haas Chairman and CEO, Raj Gupta, in a letter that he did not intend to close the transaction “due to concerns and uncertainty about the potential success of the combined organizations.” Rohm also says that Liveris refused to commit to closing at a future date, stating only that “we believe that we will be able to determine our ability to close the transaction by June 30, 2009.” Further, Rohm says that the failure of the K-Dow venture does not provide Dow with a basis for refusing to close their transaction. “Dow’s obligations under the Merger Agreement are not in any way conditioned on consummation of the K-Dow joint venture,” the spurned suitor states.

“Dow’s obligation to complete the merger is not conditioned on financing of any kind,” Rohm adds. To the contrary, Rohm asserts Dow covenanted that it “shall take all action necessary to ensure that as of the Closing Date, [Dow] will obtain the financing.”

In fact, Rohm claims in the suit that Dow has committed financing that exceeds the total purchase price of the acquisition by $2 billion. Rohm says that Dow must be required to close the merger immediately, and is seeking an injunction preventing Dow from breaching its obligations under the merger agreement.