The Dow Chemical (NYSE: DOW ) deal to buy Rohm & Haas (NYSE: ROH ) lingered for eight months, but it's finally in the process of being put to bed. However, it appears that the last chapter of this saga may not yet have been written.
Of course, had Dow's proposed deal with Kuwait Petroleum not fallen apart, the takeover of Rohm & Haas would likely have occurred smoothly and quickly. The $9 billion in funds received from the Kuwaiti joint venture would have gone nearly two-thirds of the way to paying for Rohm & Haas.
With that possibility now foregone, it became incumbent on Dow to look elsewhere for the shekels it needed to complete the acquisition. There was talk of involving not only private equity types, but public companies like DuPont (NYSE: DD ) were also mentioned as possible participants for what would be the second corporate match-up of the week. (Pharmaceutical companies Merck (NYSE: MRK ) and Schering-Plough (NYSE: SGP ) also announced their betrothal in a bigger deal that'll cost Merck $41 billion.)
In an act of bravado -- or perhaps foolishness -- Dow shouldered the cost by itself. It borrowed $10 billion from its bank line and $3 billion from Warren Buffett's Berkshire Hathaway (NYSE: BRK-A ) . It also obtained $2.5 billion from Rohm & Haas' two largest shareholders. Don't forget to throw in the estimated $1 billion saved from the company's first ever dividend cuts.
All in all, however, in my not so humble opinion, this stacks too much leverage on the Dow balance sheet. Indeed, Dow's shareholders knees could begin to buckle, as Bank of America (NYSE: BAC ) analysts calculate, the company will be shouldering debt and preferred equity of 5.3 times its EBITDA, slightly higher than the industry norm of 4.7 times.
But events also could turn out far differently than any of us might have expected. Surprise, surprise: It seems that Dow and the Kuwaitis are again holding talks with an eye toward resurrecting their original deal. And if that combination doesn't work, there appear to be other folks walking up to the party. As CEO Andrew Liveris stated during a conference call earlier in the week, Dow "[is] currently in face-to-face negotiations with potential buyers."
My advice for my Foolish friends is to watch these seemingly unending events closely. While this isn't the time to put your pesos into Dow Chemical, a reemergence of the Kuwaiti joint venture could change that picture very quickly.
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