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January 26, 2009 3:29 PM

Merger Meltdown: Four Firms Await Outcome of $15.3 Billion Chemical Deal

Posted by Brian Baxter

Wachtell, Lipton, Rosen & Katz, Shearman & Sterling, Cleary Gottlieb Steen & Hamilton, and Cravath, Swaine & Moore all are involved in a proposed $15.3 billion merger between Rohm and Haas and Dow Chemical that was scheduled to close on Tuesday morning in Wachtell's New York offices.

But the deal has faced a few hurdles since it was announced in July. Now Dow has asked for more time, triggering a civil suit filed by R&H on Monday in Delaware Chancery Court.

Dow, the nation's largest chemical company, stated in a press release on Monday morning that an acquisition of R&H still is part of the company's long-term strategy. But Dow also said that it would not close the deal on or before Tuesday, as stipulated in the merger agreement.

"Dow has determined that recent material developments have created unacceptable uncertainties on the funding and economics of the combined enterprise," the company said in its statement. (Shearman M&A partners John Marzulli, Jr., and Scott Petepiece, capital markets partner Joel Klaperman, and finance partner Ronald Bayer are advising Midland, Mich.-based Dow.)

The announcement comes just days after the merger won antitrust approval from the Federal Trade Commission in a 4-0 vote. The Deal reports that according to the merger agreement, Dow must close the transaction within two days of all deal conditions being met with FTC approval being the last of those conditions. (Cleary Gottlieb partners George Cary, Jeremy Calsyn, Dirk Schroeder, and Brian Byrne advised Dow on antitrust issues.)

But in a sign that both Dow and R&H knew that a delay might be in the offing, the two companies released a joint statement on Friday saying they were "discussing the closing of the transaction contemplated by their pending merger agreement."

It appears the Wachtell team had a monopoly on those discussions.

Executive committee cochair and M&A partner Daniel Neff, M&A partner Stephanie Seligman, and antitrust partner Nelson Fitts are leading a team advising R&H on the corporate side. According to a copy of the 17-page Delaware complaint, courtesy of The New York Times's Dealbook, R&H is also being represented by Wachtell litigation partners Paul Rowe, Marc Wolinsky, and counsel Elaine Golin. (Partners Collins Seitz, Jr., Henry Gallagher, Jr., and David Ross from Delaware's Connolly Bove Lodge & Hutz are serving as local counsel.)

The litigation shouldn't come as a surprise to Dow--a spokesman was not immediately available for comment--as R&H had issued a strongly worded statement on Monday morning stating that it would "pursue all available alternatives to protect its shareholders' interests."

One of those shareholders is the Haas Family Trusts, which owns 33 percent of the Philadelphia-based company's outstanding stock. Cravath corporate partner Richard Hall, trusts and estates partner Daniel Mosley, and litigation partner Elizabeth Grayer represent the Trusts, which support the acquisition.

With credit markets tight, Dow had planned on financing the deal with $3 billion from Warren Buffett's Berkshire Hathaway and an additional $1 billion from the Kuwait Investment Authority, one of the world's largest sovereign wealth funds.

Dow was also relying on roughly $9 billion from a proposed $17.4 billion joint venture with Kuwait's Petrochemical Industries Company (PIC)--a subsidiary of mammoth state-owned Kuwait Petroleum--to fund its offer for R&H. (Ashurst energy and infrastructure partner Louise Eccleston advised PIC on the now-dead Dow venture; Shearman's Marzulli advised Dow.)

But when the joint venture with PIC blew up spectacularly in December, doubts grew as to Dow's ability to finance its R&H acquisition.

Dow itself put some of the blame squarely on PIC for its current inability to close the R&H deal on Tuesday.

"This assessment is based on several macro-economic factors such as the continued crisis in global financial and credit markets combined with the dramatic and stunning failure of [PIC] to fulfill its obligation to complete the formation of the K-Dow joint venture in late December 2008," said Dow in a statement.

Not surprisingly, R&H begs to differ.

"The failure of the K-Dow venture does not provide Dow with a basis for refusing to close," write R&H's lawyers in the Chancery Court complaint. "Dow's obligations under the merger agreement are not in any way conditioned on consummation of the K-Dow joint venture. In fact, Dow's obligation to complete the merger is not conditioned on financing of any kind."

Dow might be thinking of litigation of another kind. Bloomberg reports that each side in the now-defunct K-Dow joint venture is entitled to a breakup fee of $2.5 billion if the other cancelled the transaction.

Dow has said that it plans to pursue legal action against PIC.

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