Dow Chemical / Rohm & Haas Rhetoric Takes a Turn 11 comments
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Less than a month ago Dow Chemical (DOW) was begging Rohm & Haas (ROH) to come to the bargaining table. Now, after a new agreement with their lenders and some chiding from the judge, they are essentially telling Rohm, "give us the deal we want or we'll see you in court".
Dow Chemical Co (DOW.N) said on Sunday that settlement talks with Rohm and Haas Co (ROH.N) were going "quite well" on the eve of a scheduled court hearing on their soured $15 billion merger. Unless a settlement is reached, Dow and Rohm and Haas are set to face off on Monday in Delaware court over Dow's refusal to close its more than $15 billion takeover of Rohm and Haas.
A spokesman for Dow said it was looking for the "right deal," but a takeover of Rohm and Haas at $78 per share in cash was not acceptable. Unless Dow gets the right deal, it said it would proceed with the court hearing. Dow said it was important that it protected its investment-grade rating.
Dow said it would have more to disclose on Monday. Rohm and Haas could not be immediately reached for comment.
Notice the change? Dow has taken Rohm's arguments off the table and the judge has made it clear that he will weigh the interests of the near 60,000 employees the combined entity would have vs. the interest of the 3 shareholder groups who stand to benefit the most should the merger be forced immediately. One can't help but think it was a less than subtle way of saying "get to the table".
Recent actions have Dow making concessions and working with its bankers. Here is the rub for Rohm. The whole deal is contingent on Dow extending is loans with the bank an additional year. The banks agreed to do that only if Dow maintains its credit rating. Forcing the deal now would cause them to lose that and the whole deal would end up costing jobs...lots of them, a scenario the judge has already alluded to wanting to avoid.
It is the banks who are now forcing the hands of Rohm. Expect concessions on their part.
Disclosure: Long DOW
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Your comments regarding this deal are all biased agaist Rohm. When two parties agree to a contract, they are expected to honor it. To have the government involved to have mercy on Dow seems to intrusive and noncapitalistic. If the government is involved in the free market, we are going to be a communitst or socialistic country. This will only causes further lack of confidence in the market.
I can't see the companies, workers or Dow shareholders benefiting.
As I've stated, your 'spin' on the DOW/ROH merger was wrong(and costly to your investors).
The correct trade was long ROH and short DOW.
The deal will close at $78 an I've still only covered half my short position in DOW; my near term target for DOW remains $5.
DOW did not do their homework, and is being punished on all fronts for their imbecility. Unfortunately, their employees are caught in this crossfire.
On Mar 09 02:21 PM Maxters wrote:
> I would have to believe only ROH investors would benefit if pushed
> to merge..
>
> I can't see the companies, workers or Dow shareholders benefiting.
...$78 a share.
All your self-delusion of the past few months somehow managed to miss the main point: A contract is a contract. It doesn't matter if the contract was smart or dumb, it's a legally binding agreement. You want to talk about harm to the economy and lost jobs? -- How about the judge setting a precedent that companies can unilaterally decide not to honor their contracts when it isn't convenient for them? Not even the US legal system can abide that kind of chaos. Dow saw the writing on the wall, and caved.
And now your spin will be that Dow will somehow or other get somebody or other to enforce Dow's $2.5B claim against Kuwait for welshing on the K-Dow deal. Never mind the hypocrisy, but just exactly which court is going to enforce that penalty?
Todd - I encourage you to go back and read your posts with a critical eye. You write:
"Less than a month ago Dow Chemical (DOW) was begging Rohm & Haas (ROH) to come to the bargaining table. Now, after a new agreement with their lenders and some chiding from the judge, they are essentially telling Rohm, 'give us the deal we want or we'll see you in court'..."
"Notice the change? Dow has taken Rohm's arguments off the table..."
It would take a diviner of bird entrails or a cold war Kremlinologist to find any new information in the Sunday press release by Dow. But you seem to have found (as in earlier posts) evidence that ROH was caving. The reality is that ROH's comments on the matter have largely been "A deal's a deal" or "no comment". This is not the PR behavior of a company that's making concessions when they are in control of a negotiation.
ROH has had the upper hand in this negotiation from the start and Dow's available arguments in court have been the equivalent of a "Hail Mary" pass with one second left on the clock.
You seized upon the "60,000 jobs lost" argument, without (so it would seem) considering the absurdity of that claim as I indicated in this earlier response to one of your posts.
seekingalpha.com/user/...
See also Highwater 888 here:
seekingalpha.com/user/...
Finally, this comment from 'the surfer' explains very well why ROH had no incentive to cave on the $78 takeover price:
seekingalpha.com/user/...
At the end of the day, DOW's "What about all the lost jobs?" argument was based on the assumption that the original deal would leave them over-leveraged and vulnerable. But no judge was going to accept that argument without asking the question, "So how might you reduce the leverage?" And so we saw DOW lower its dividend for the first time in its history. That was pretty objective evidence that DOW was preparing to close the deal. And the news slipped out that DOW was shopping its AgroSciences business to raise cash. That was pretty objective evidence that DOW was preparing to close the deal. And DOW was accruing the ticking fee on the ROH deal... more objective evidence. And DOW was negotiating with its lenders to extend its bridge lines... more objective evidence.
(Here I find it ironic that you saw this renegotiation as essentially a "bad faith" ploy on DOW's part to install a credit downgrade trigger in the new loan terms, which would trip if the ROH deal closed, which would -- I'm not sure what you were thinking -- give DOW a financing out? No judge would tolerate a walk-away argument based upon DOW's affirmative attempt to sabotage it's own credit facilities, especially when the bridge lines were in place and the deal was fully financed on the ORIGINAL CLOSING DATE, which DOW breached.)
At the end of the day, it looks like the judge did a masterly job here. He pushed the parties to a renegotiation, he probably gave them some private instructions about his tolerance for certain arguments; and DOW was led to take actions that drove its stock price down to levels where the Haas family and John Paulson were willing to take some DOW paper in lieu of cash. Leverage problem solved; sanctity of private contract upheld.
While I'm sure he expressed some concern for the fate of 60,000 employees at DOW, I'm equally sure that the possibility of diluting DOW's existing shareholders was not going to be a factor in any equitable balancing of the various interests at play here.
On to the next deal...