The Dow Chemical Co will complete its takeover of Rohm & Haas next month in a legal settlement that provides Dow with up to US$3 billion in new cash, the companies said on Monday.
Dow Chemical is to acquire Rohm & Haas for the price originally announced in July, US$78 a share, which values the Philadelphia-based specialty chemicals maker at US$18 billion.
But the deal effectively lowers the price tag after Rohm & Haas agreed that its two largest shareholders would inject at least US$2.5 billion into the struggling Dow, the largest US chemical maker.
“Today’s agreement resolves the litigation initiated by Rohm & Haas against Dow on January 26, 2009 with a resolution that is beneficial for each party,” the companies said in a joint statement.
Rohm & Haas filed suit against Dow after it said it was unable to proceed with the acquisition.
Announced in July at more than US$18 billion, the takeover deal hit turbulence after Kuwait’s state-owned Petrochemicals Industries in December scrapped a joint venture with Dow that would have netted the US firm US$7.5 billion, citing unfavorable economic conditions due to the global financial crisis.
Dow subsequently said it could not meet a Jan. 27 deadline for its takeover of Rohm & Haas, citing “unacceptable uncertainties” on financing.
Under the terms of the settlement deal, the two largest shareholders in Rohm & Haas have agreed to inject up to US$3 billion into the Midland, Michigan-based company by buying preferred and convertible stocks.
“The settlement agreement involves a new substantial equity investment in Dow of US$2.5 billion and at Dow’s option an additional US$500 million of equity, at the closing of the merger by the two largest shareholders of Rohm & Haas,” the companies said.
The statement identified Haas Family Trusts as one of the shareholders. The second shareholder is the Paulson hedge fund.
Billionaire Warren Buffett’s holding firm Berkshire Hathaway is to invest US$3 billion into Dow and Kuwaiti holding KIA will invest an additional US$1 billion.
The other shareholders were to receive “the original cash consideration,” the two companies said.
The deal will cost more jobs than initially announced, with a 3,500 headcount reduction announced on Monday, in addition to the 6,500 previously announced by the two firms: 5,000 for Dow and 1,500 for Rohm & Haas. Dow said the merger would generate at least US$900 million in savings that could reach US$1.3 billion.
A salary freeze was expected to generate US$200 million and spending will be cut more than half from last year’s levels, to US$1.1 billion from US$2.3 billion.
“The restructuring of the terms of the transaction allows Dow to maintain financial flexibility as we proceed to implement our strategy in a way that realizes the original promise of this acquisition,” said Andrew Liveris, Dow chairman and chief executive, in the statement.
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