Will Dow Chemical (DOW) Use Results As Out For Rohm And Haas Deal?

Dow Chemical (DOW) posted earnings only a mother could love. The firm had a $1.55 billion loss in the last quarter and said low demand will continue "for several quarters and possibly beyond." Dow lost $1.68 a share during the quarter. Revenue fell 23% to $10.9 billion, with prices falling 6% and volume dropping 17%.

The part about "the bad quarters ahead" may be part of what Dow uses to try to back out of its deal to buy Rohm and Haas (ROH). It won’t work.

Dow expected to have a $17.4 billion joint venture with Kuwait. About $7 billion from that deal would have allowed it to finish the Rohm deal without seeking a lot of outside money which would have been expensive in this credit environment.

Without that capital in hand, and perhaps worried about the collapse of the chemical industry, Dow said it would not close the deal on time. Rohm has sued to get the acquisition completed.

Dow has said it wants to "keep talking" about the deal. That means it is looking for a way out. The merger agreement is apparently tight enough so that killing the deal is not a real options. Rohm will probably win in court and force the transaction to be finished or be awarded significant damages.

Dow may point to its poor results for the last quarter both in the court of public opinion and in the courtroom where Rohm has dragged it. Dow’s excuse is simple. It did not think the future would be this bad. The buyout was based on the assumption that it was a perfect deal and perfect deals are always worth doing.

Now, the deal is deeply flawed and Dow is out of options.

Douglas A. McIntyre