Dow Chemical Co., given breathing room by bankers, is reengaged in talks with Rohm & Haas Co. to work out terms of a $15.3 billion merger before a trial begins Monday morning to try to force the transaction.

Dow Chief Executive Officer Andrew Liveris has said closing the transaction without better financing or asset sales would threaten the combined company’s survival. Dow, the biggest U.S. chemical company, announced its lenders agreed to provide an option to extend a bridge loan for the deal by one year to April 2011.
“We see an even stronger likelihood that Dow will go ahead with the deal and find itself with too much short-term debt with a worsening business outlook,” Carol Levenson, an analyst at Gimme Credit LLC, said in a report.
A lawsuit filed by Rohm & Haas asking a Delaware Chancery Court judge to force Dow to complete the merger is scheduled to go to trial March 9.
Liveris has said the company didn’t close the deal as planned in January because it needed new terms from Citigroup Inc. and other lenders after the collapse of a joint venture with Kuwait deprived Dow of $9 billion.
The amended loan is $12.5 billion, $500 million less than prior financing, and $8 billion of the total can now be borrowed for two years, the company said in a filing.
Dow’s commercial paper and short-term credit ratings were lowered yesterday by Standard & Poor’s because of concern the company’s finances may be hurt if it is forced to acquire Rohm & Haas under the original terms.
Dow’s corporate credit and senior unsecured debt ratings of BBB, two levels above junk, may be lowered if the merger closes on the original terms or if the company is found liable for a large legal judgment, S&P said.
Midland, Michigan-based Dow’s stock price has tumbled 79 percent since July 9, the day before the Rohm & Haas acquisition was announced, while Philadelphia-based Rohm & Haas has gained 42 percent. Dow, which was worth more than three times Rohm & Haas by market capitalization, is now worth about half its acquisition target.
“We expect a settlement this weekend, because on Monday the trial begins,” said Amit Shabi, a partner at Geneva-based Bernheim Dreyfus & Co., which owns Rohm & Haas shares. “Extending the bank loans for a year will give them time to sell assets and do it in a less distressed way.”
Dow Chemical and Rohm & Haas are “in discussions relating to the merger of their companies and the pending litigation” and would not immediately provide further detail, the chemical makers said in a statement. Rohm & Haas spokeswoman Emily Riley declined to elaborate, and Dow didn’t immediately respond to questions about the merger.
In addition to the bridge loan, Dow has arranged a $3 billion equity investment from Warren Buffett’s Berkshire Hathaway Inc. and a $1 billion investment by the Kuwait Investment Authority.
(Source: Bloomberg)