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Dow Chemical down after deal implodes

A Dow Chemical Company plant in Torrance, Calif.

TEXT OF STORY

Kai Ryssdal: The lead business story also comes out of the Middle East, via that plastic shampoo bottle or the grocery bag you might have used today. Dow Chemical probably had something to do with making either one of them. And if all had gone as planned, by the New Year a state-owned Kuwaiti company would have been making those products with Dow. The two companies had agreed on a joint venture worth billions of dollars. Kuwait though, pulled out late Sunday. Now another Dow deal is at risk of crumbling, in part because the company's shares dropped almost 20 percent today.

Janet Babin reports from the Marketplace Innovations Desk at North Carolina Public Radio.


Janet Babin: Kuwait's turnaround is a big blow to Dow Chemical's business strategy. It won't have access to Kuwait's cheap raw materials or cutting edge technology, and it won't have the cash from the joint venture. It was money Dow needed to finance the acquisition of its rival Rohm and Hass. Ben Johnson is an analyst with Morningstar.

Ben Johnson: They were going to diversify, into higher-end specialty chemicals by acquiring Rohm and Haas, while simultaneously shedding some of its more basic lower-margin commodity businesses.

Dow Chemical inked the Rohm and Haas deal in July. But it had to pay a premium price -- $78 a share in an all cash deal -- to get it. Now that Kuwait's said, "Never mind," analysts worry that Dow Chemical can't afford Rohm and Haas. Frank Mitsch is with BB&T Capital Markets in New York.

Frank Mitsch: We think going through with the transaction as it's currently situated, puts the company at great peril.

But Dow Chemical might not have much of a choice. If the company reneges on Rohm and Haas, it will have to pay a $750 million termination fee, plus additional break-up costs. And a new deal with Kuwait is unlikely too. It backed out because of the global financial crisis, and falling crude oil prices. Mitsch says global innovation may be on hold for now, at least when it comes to products from oil and gas.

Mitsch: The need to be cautious dealing with the totalitarian states that happen to be where a lot of the oil and gas is found makes it very problematic.

In a statement, Dow said it was committed to its Middle East strategy. Rohm and Haas issued a statement saying it has a definitive agreement with Dow Chemical.

I'm Janet Babin for Marketplace.

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