Dow Chemical Goes A-Courtin'

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It looks like Dow Chemical (NYSE: DOW) will travel the legal trail to salvage what it can from a cancelled joint venture with a state-owned Kuwaiti company. That being the case, the key questions surrounding Dow involve the amount it might be able to salvage from the deal, along with the ultimate timing -- and price -- of Dow's planned purchase of Philadelphia's Rohm & Haas (NYSE: ROH).

As you probably know, Dow agreed last year to acquire Rohm & Haas, a maker of coatings and electrical materials. The more than $15 billion tab was based on a price of $78 for each of Rohm & Haas’ shares, which closed at $61.54 on Tuesday.

Then there came a snag in a deal with Kuwait Petroleum Corp., a $17.4 billion joint venture that would have been called K-Dow Petrochemicals and was to have closed early this year. The $9 billion that Dow would have received from contributing some of its production facilities to the partnership would have gone toward paying for the Rohm & Haas acquisition.

But K-Dow unraveled at the altar when the Kuwaitis got squeamish about the world's economy and up-and-down oil prices. With the kibosh on that transaction, funding for Dow's Rohm & Haas purchase is now questionable. With that in mind, and under the premise of protecting its shareholders, Dow will challenge the Kuwaiti pullout legally.

As for the Rohm & Haas acquisition, the agreement was signed without a "buyer's remorse" clause, which would have permitted Dow to walk away by paying a penalty. And without the consummation of the transaction following Saturday’s scheduled closing date, the price will escalate by $100 million through a "ticking fee" for each month it isn't completed. Dow, however, may be willing to eat the fee, thereby gaining time to line up one or more partners to help fund the purchase.

Unfortunately for Dow, the chemical business is facing tough sledding these days. Analysts are expecting down quarters for smaller players Ashland (NYSE: ASH) and Cylec (NYSE: CYT). At the same time, DuPont (NYSE: DD) is painting a less than rosy picture for the rest of the year, and Germany's BASF (OTC BB: BASFY) has been closing plants in big numbers. As such, potential partners for Dow's planned purchase may not pop up behind every tree.

So, with all that's going on at the company, and despite Dow's five-star rating from Motley Fool's CAPS players, I'd keep the company at arm's length. In this market, I'd rather let the dust settle before involving myself in a situation with too many moving parts.

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