Legal News

On Eve of Trial, Will Dow and Rohm Kiss, Makeup and . . . Become One?

By Ashby Jones

Will Dow & Rohm sit down . . . then go home?

It certainly seems more likely than it did a few weeks ago. In a joint statement issued Friday, the companies — Dow Chemical Co. and Rohm & Haas Co. — said they’re in discussions about their proposed $15.3 billion merger and the pending lawsuit related to the deal. Here’s the Dow Jones Newswires story; click here for a LB post on the situation from January.

The quick backstory: The companies agreed to a $15.3 billion merger in July of 2008. But after that, Dow dragged its feet in closing the deal, blaming "unacceptable uncertainties on the funding and economics of the combined enterprise" for the decision to put off the deal. Factors cited by Dow include a slump in chemicals demand that started in the fall, as well as last month's implosion of Dow's planned $17.4 billion joint venture with Kuwait.

So, more than a little annoyed, Rohm & Haas sued Dow in Delaware state court, alleging that Dow’s rationale for backing out of the deal was bogus. (Click here for a copy of the complaint.) In the complaint, Rohm & Haas alleged that, by July 2008 - the month the deal was signed - "the credit markets were already in turmoil and the risk that the U.S. and world economies could be entering a deep and prolonged recession was widely acknowledged. Dow nonetheless agreed to pay a very substantial premium for Rohm and Haas . . . ."

But with the trial pending — it is slated to start Monday — the companies have apparently moved to the bargaining table.

For Dow, it might be the smart move. McCarter & English partner Howard Berkower, a merger lawyer who's not involved in the deal, told the LB in January that Rohm & Haas might have had the firmer argument. "The merger agreement is drafted in a way that's favorable to Rohm & Haas, including the definition of what constitutes a material adverse effect,” said Berkower.

A court, says Berkower, could order specific performance, in other words, that the deal go through. “I can understand why courts are generally loathe to force a company to close a deal,” he added, “but as us lawyers say, a contract is a contract. At the end of the day."

Full post as published by Law Blog - WSJ.com on March 06, 2009 (boomark / email).