ChuckChange

Some Thoughts on Dow Placing Dividend Cut on the Table

RE ROH: I think Dow is just buying time here to try and sort out another JV or maybe even find a partner to help buy ROH in the next month or so to avoid the stock getting hammered and further credit downgrades. I think the bottom line is they are totally screwed and will likely have to pay the 78 (they probably know this to). What really bothers me was his "world has changed comment". OK, sure, a few economic issues (call them disasters if you want) have developed since the deal was negotiated in the summer of 08, but were we really all that surprised? Should the CEO and board of a global chemical giant at least considered the slight probability things get worse? I say yes. Ill even take a stab at his analogy. If you buy a “beachfront property”, the thought of a flood or global warming raising ocean levels should be considered as a risk and factored into any price (especially when the property floor was probably a little damp in the first place!). If not, that’s your fault, not the sellers. Furthermore, if Dow trys to walk away from the deal, and is somehow successful, I think the bigger question here is the validity of a contract in general and what it means for the future of M&A, and business in general, in the United States. If they are allowed to walk away, I have no idea how any deal in the US will ever have any credibility. A contract will essentially mean nothing. I dont know about you, but contracts, and there enforceability, are pretty central to a successful market economy in my mind. I think in the end, it would be better to force DOW to buy ROH at 78 and see the company go bankrupt the very next day than totally everything that a contract stands for out to sea.
Note that I (obviously) have a similar view to others on this post that the contract was negotiated (and looks) air tight. If Dow manages to find a way out via some overlooked portion of the merger agreement that I and other market participants have missed then fair play for having a valid legal argument, and ROH has its lawyers to blame for missing it. My concern would be the courts give Dow an out based on conditions ROH specifically tried to itself protect against.