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Dow wraps up US$16.5b deal

DOW Chemical Co late Wednesday said it has completed its US$16.5 billion buyout of Rohm & Haas Co, a deal that it hopes will fuel growth in the high-margin specialty chemicals market.

Rohm & Haas will form the core of a new advanced materials unit that is likely to have US$14 billion in annual sales, Michigan-based Dow said.

The Rohm & Haas brand will disappear and its stock has stopped trading on Wednesday, Dow said.

"The closing of this transaction strongly positions Dow for the future by transforming our business portfolio," Dow Chairman, Chief Executive and President Andrew Liveris said in a statement. "We are committed to delivering on a clear and measurable plan designed to meet the needs of our investors, employees, customers and suppliers, even in this current challenging macro-economic environment."

Dow's executives have "got a lot of work ahead of them," said Gabelli & Co analyst Robert Felice.

Dow took on much more debt than originally planned for the Philadelphia-based company, a negative on Wall Street amid the financial downturn. Additionally, much of the funding for the deal came from a US$10-billion loan that becomes much more expensive after a year.

A successful integration is necessary to boost sales and reduce that burden, Gabelli said.

Debt rating cut

Standard & Poor's Ratings Services cut its corporate credit and senior unsecured debt rating on Dow to "BBB-" from "BBB." The new rating is one notch above junk status, and a downgrade to that level could raise the company's costs to borrow money.

S&P kept Dow on CreditWatch with negative implications, implying another downgrade is possible.

"We believe the transaction is an important strategic initiative for Dow and consistent with its efforts to bolster the breadth of its specialty product offerings, but it will meaningfully stretch the financial profile to a level beyond what we consider consistent with the former ratings," S&P analyst Kyle Loughlin said in a statement.

Dow first proposed the deal last July as part of a plan to focus on specialty chemicals and spin off its commodities business in a joint venture with a Kuwaiti company. But the Kuwaiti company withdrew from the joint venture late last year.


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