Dow, Rohm & Haas reach merger settlement

GEORGETOWN, Del. - Dow Chemical Co. agreed yesterday to acquire Rohm & Haas Co. for the original price of $15.3 billion in cash, or $78 a share, after the Haas trusts in Philadelphia and hedge-fund operator John Paulson, the two largest shareholders in Rohm & Haas, put up $3 billion to help close the deal.

It was a big win for Rohm & Haas shareholders, who get a rich price for their stock, and gives beleaguered Dow Chemical some breathing room.

The settlement, approved by Delaware Judge William B. Chandler III, says the merger must close April 1. It also settles the lawsuit Rohm & Haas filed in Delaware's Court of Chancery in late January seeking to force Dow Chemical to honor its disastrously timed July merger agreement.

The surprising Haas-Paulson infusion, along with looser borrowing terms from Dow's banks, will allow the Michigan chemical giant to avoid a quick default on loans connected to the merger. Dow is considering deeper employee cutbacks, which could affect the Philadelphia area.

In an interview on the courthouse steps in Georgetown, Dow attorney David Bernick acknowledged, "There's a lot of work that has to be done."

Dow announced in the late afternoon that it would cut an additional 3,500 jobs from the combined corporate entity and close research labs and plants. Rohm & Haas employs 15,500 people, 3,000 in this area.

Dow chief executive Andrew Liveris said in a conference call from Midland, Mich., that Dow was reconsidering its pledge to keep Rohm & Haas intact in Philadelphia as Dow's specialty chemicals divisional headquarters.

"The next three weeks will have to drive how we put this together," he said in response to an analyst's question about the Rohm & Haas operations.

Dow is "relooking at how we put this model together because of the new reality," Liveris said, referring to the bad economy and the financing issues related to the merger.

In the original merger agreement, Dow said it would keep the Rohm & Haas operations in Philadelphia and, in fact, give it authority over some Dow specialty chemical products.

That pledge was used as a selling point when Rohm & Haas executives announced the deal in Philadelphia in the summer.

Dow wooed Rohm & Haas because it wanted the company's highly profitable specialty chemical products, such as paint additives. Rohm & Haas came on the market when the Haas family decided to diversify the assets in its family and charitable trusts.

Dow is "very, very pleased" with the agreement, Bernick said, noting that Dow won major objectives - the $3 billion and new bank terms. Observers, though, said Dow had not gotten much in its negotiations because it still had to pay the $15.3 billion and faced harsh economic conditions in its chemical business.

As word of the settlement leaked out in the afternoon, Dow Chemical's stock plunged about 10 percent, or 78 cents a share, to $6.33. The company closed the day with a market-capitalization of less than $6 billion, and many believe it will have to sell businesses to avoid running into problems with its banks.

One business likely to be sold quickly will be Rohm's Morton salt division.

Yesterday's agreement does not specifically call for Dow Chemical to sell assets, Bernick said.

Chandler's official announcement of the accord in a hushed courtroom at 4 p.m. capped a day of rumors and back-and-forth between the two sides.

Top Rohm & Haas executives Raj Gupta and Pierre Brondeau were at the courthouse and involved with the negotiations. They were scheduled to testify in the trial resulting from the lawsuit, which was to have begun yesterday and run all week.

"The strategic story is still true, and it will be a great marriage," Brondeau said in an interview after Chandler's announcement.

He said he did not believe that bitter feelings would persist between the two organizations, saying, "We are all professionals, and we believe in this company we are building."

The agreement did not come as a total surprise. Dow Chemical disclosed over the weekend that it had reached new lending terms with its banks.

A significant portion of the bank loans were extended to two years from one year. The new terms also loosened the leverage, or debt, requirements on the loan. But the more liberal lending terms were onerous in higher debt costs, experts say.

Dow and Rohm & Haas had said Friday that they were talking about a settlement, and a Dow spokesman said Sunday night that the talks were going "quite well."

The case was unusual in that Rohm & Haas was asking a judge to order "specific performance" - that is, to close the deal - instead of seeking financial damages.

The second-floor courtroom in Delaware's Court of Chancery, on the Georgetown Circle in the southern part of the state, began filling with dark-suited lawyers at 8 a.m. Cell phones and BlackBerrys were checked at the door.

Dow Chemical attorneys sat on the right side the white-walled courtroom with the dark wood railing. Dow had asked for the case to be delayed. Now that it was under way, Dow's attorneys were the first in the courtroom.

About 8:50 a.m., Brondeau entered, scheduled as an early witness for Rohm & Haas. (He is to run Dow's specialty chemical division, which will retain Rohm & Haas' name.)

Brondeau, a Frenchman, tried to break the tension, giving two thumbs up and saying he had read his pretrial deposition "six times. I'm ready." Then he pointed at one of the Dow Chemical attorneys and joked, apparently about his deposition, "Oh, he wasn't very nice."

To read more about Rohm & Haas, go to http://go.philly.com/

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