Trial opens Monday in Dow-Rohm merger dispute

It won't be the trial of the century, or as tantalizing as the Fumo corruption trial. But for business cases, this is high drama.

Starting tomorrow, two corporate titans - Raj Gupta of Philadelphia's Rohm & Haas Co. and Andrew Liveris of Michigan's Dow Chemical Co. - will face each other, in a Delaware courtroom, over whether to complete a megamerger that looks more undoable with each passing day.

Dow, the nation's largest chemical company, agreed last July to pay $15.3 billion in cash and assume more than $3 billion in debt for Rohm & Haas, a specialty-chemical company. Dow's stock market capitalization - or the value that Wall Street places on the Midland, Mich., company - had fallen to about $6.5 billion by Friday. The same day, the government said the nation's unemployment rate hit 8.1 percent in February, the highest level since December 1983.

Dow says closing the merger would do "irreparable harm" to the combined corporate entity and has thrown itself at the mercy of the court in seeking to be let off the hook. The case shows how the swift economic collapse and vast banking crisis have ensnared even recently stable corporations.

Business cases are typically settled before a trial because of the uncertainty of leaving matters up to a judge. There were fevered rumors of a settlement late last week, and the companies confirmed Friday that they were in new talks over the merger and litigation.

Business reputations, thousands of jobs, and the financial heft of the Haas family, which owns $5 billion in Rohm & Haas stock at the merger price of $78 a share, teeter on the scales of justice in Delaware's Court of Chancery in Georgetown.

The Haas family shares are held in family and charitable trusts, which fund philanthropic projects in the Philadelphia area.

Executives at Rohm & Haas could make $375 million on the deal, in stock options. Gupta, the Indian-born chief executive officer who has said he will retire when the merger closes, will part the company with about $102 million in cashed-out stock, options, retirement, and merger-related compensation.

Rohm & Haas employees are concerned about their pensions, retiree health care, job security, and future. They believe that if the deal does not happen with Dow, Rohm & Haas would be in play for a takeover. The company employs 15,500, with about 3,000 in the Philadelphia area.

The Michigan city of Midland, an unusually vibrant municipality in a state with the nation's highest unemployment, is concerned that an unfavorable court ruling could cripple a company that is the region's biggest employer and civic booster.

"I find it hard to predict, but I am probably with the majority who think Rohm & Haas has a better case. But I can see it going the other way. Maybe this is truly an unprecedented situation that will cause a tremendous amount of damage," Anthony Page, associate professor at the Indiana University School of Law, said last week.

Page teaches a mergers-and-acquisitions class and already is using the Rohm-Dow merger as a legal case study. "As the economic position gets worse, Dow's position gets stronger," Page said. But he added, "It's hard for me to see how Liveris keeps his job, however this works out."

Liveris, the Australian-born chief executive at Dow, agreed to buy Rohm & Haas before he had sold a big piece of Dow to Kuwait for financing. The situation worsened horribly for him in late December when the Kuwaiti government abandoned the K-Dow joint venture. Many say they believe the Kuwaitis were startled by a sharp drop in national oil revenue. The venture would have provided Dow with $7 billion to $9 billion in cash for Rohm & Haas.

Delaware Judge William Chandler 3d of the Court of Chancery will hear the case and has moved briskly since it was filed in late January by Rohm & Haas. The complaint seeks to force Dow Chemical to honor the merger contract immediately. Dow says it cannot do so until possibly June.

Overflow crowds are expected tomorrow in Chandler's court in southern Delaware. There will be live video feeds to Wall Street trading rooms.

Many say they believe that Dow overpaid when it bid against Germany's BASF AG and now would like to negotiate a lower price.

To complete the merger now, Dow could have to sell a highly profitable agricultural-products division or a 50 percent stake in Dow Corning Corp., which were both considered part of Dow's future strategy. Dow experts say selling the agricultural business or Dow Corning negates the original decision to buy Rohm & Haas.

Dow has to make tough choices, Gupta said in an interview, adding that Dow has "plenty of them." Gupta, 63, is considered a brilliant strategic thinker and has worked for Rohm & Haas for 37 years.

He is one of a few high-ranking Indian executives in the United States. Several years ago, he counseled Chad Holliday Jr., the chairman of DuPont Co. in Wilmington, on rural Indian traditions when Holliday's son was about to marry an Indian woman whom he had met at graduate school.

Gupta told Holliday to expect about 2,000 people at the wedding because it would be a village-wide celebration. "It was really helpful," Holliday said of Gupta's advice over a weekend at the Delaware shore. "Some of these Indian traditions don't make sense to the Western mind."

Liveris, 54, an ethnic Greek who was raised in Australia, has faced hate mail and fingerpointing in Midland, a city of about 41,000 near the thumb of Michigan.

David Helgerson, a former Dow employee and personal friend, said this had been an "extraordinarily difficult" time for Liveris, whom he calls a family man. But Helgerson said, "if [Liveris] gets personally hurt, it doesn't stay with him. He is totally focused on Dow going forward."

Gupta, in a Feb. 10 interview, expressed sympathy for Liveris, saying he has had "bad luck."

Both executives could testify in the trial, according to court documents. Neither would comment last week.