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Dow Chemical and Rohm in talks on disputed $15bn takeover deal

By Reuters

Dow Chemical and Rohm and Haas said they are in talks to try to settle litigation related to Dow's refusal to close its more than $15 billion (Dh55bn) takeover of Rohm and Hass.

Dow also said it had agreed with its lenders to an option that could extend its loan for the deal by a year, but the size of the loan was reduced by $500 million (Dh1.83 billion) to $12.5bn.

Rohm and Haas sued Dow in January to try to force the company to close the merger.

Dow agreed to buy Rohm and Haas last July for $78 a share, which represented a 74 per cent premium, to broaden its product offerings in higher-margin markets such as paints, coatings and electronic materials.

But Dow balked at closing after a joint venture with Kuwait fell apart. Dow had intended to use proceeds from that $17.4bn plastics joint venture to help fund the Rohm deal.

The companies said in a joint statement that they could not predict the outcome of the talks and would not comment further. The dispute is scheduled to go to trial tomorrow.

When it signed the agreement with Rohm, Dow arranged for a one year, $13bn loan from a consortium of banks. But Dow has argued that the loan was never intended to be the primary source of funding for the agreement.

Dow said in a filing with the US Securities and Exchange Commission on Friday that its lenders had cut the loan by $500m and agreed to give Dow the option to extend the loan for another year, provided the company met certain conditions. Those conditions include payment of an extension fee, reduction of the principal of the loan to less than $8bn and compliance with a total leverage ratio.

Michael Judd, an analyst at Greenwich Consultants, said the possible extension was positive toward getting the deal done. "To the extent that they can extend, it gives them additional time to put in some additional financing," he said. "It probably makes it easier for the deal to go through", but conversely, he said the extension may make Dow's task more difficult if the case goes to trial.

Dow's case hinges on the argument that the merger could be disastrous to both companies. It has said the combination of the rapidly worsening economic environment with the collapse of a joint venture with Kuwait has made completing the deal unduly arduous.

Judd said the renegotiation of the financing could take some of the steam out of this argument.