Dow Chemical is prepared to miss next week’s deadline to clinch the $15bn takeover of Rohm & Haas in an effort to raise enough cash to complete the deal without taking on too much debt.
Dow announced on Tuesday it was suing Kuwait’s state-owned oil company for its surprise decision to pull out of a joint venture for the US company’s plastics business 10 days ago.
Dow wanted to use the $9bn to be earned from the joint venture to repay part of a $13bn bridge loan and close the Rohm & Haas deal – a key plank of its strategy of increasing its exposure to higher-growth products.
Andrew Liveris, Dow’s chief executive, told the Financial Times that the company would make up the difference by finding new partners for the plastics business, selling other non-core units and making further cuts to its workforce. He suggested Dow was prepared to pay the penalty for missing next Monday’s deadline for the closure of the Rohm & Haas takeover, which also includes $3.7bn in the target company’s debt.
The original agreement, signed in July, contains a “ticking fee” that requires Dow to pay around $100m more for every month of delay in closing the transaction.
“The ticking fee is not a huge amount of money,” Mr Liveris said. “If the ticking fee has to be paid, it will not be a big deal.”
Mr Liveris declined to comment on speculation that Dow could try and lower the price below the agreed $78-per-share.
However, one person close to Rohm & Haas, whose shares traded at around $60 on Tuesday, said that was unlikely because the July agreement gave Dow little or no leeway to change or cancel the deal.
Dow has the option of tapping the whole bridge loan, which was arranged by Citigroup, Morgan Stanley and Merrill Lynch and syndicated to several other banks.
However, analysts have warned such a move would saddle the company with too much debt and threaten its credit rating and dividend, which has not been cut since 1912.
Mr Liveris said Dow had already been approached by two unnamed parties willing to open talks over the plastics joint venture.
He added the company would open a formal auction in the hope of finding new partner in the coming months.
“News of our demise has been greatly exaggerated,” he said. “We will have no trouble finding a new date for the dance.”
