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By Samuel R. Avro on Dec 29, 2008 with no responses

Dow Chemical Hurt Hard After Kuwait Cancels Deal

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Dow Chemical Co.'s headquarters in Midland, Michigan.

Dow Chemical Co. headquarters in Midland, Michigan.

Shares in Dow Chemical Co. plummeted the most it ever has in more than 28 years after Kuwait withdrew from a planned $9 billion investment in the company. There may be even more fallout from the non-deal, as Dow’s planned $18.8 billion acquisition of Rohm & Haas now stands in jeopardy.

Midland, Michigan-based Dow, the biggest U.S. chemical company, declined $3.60, or 19 percent, to $15.32 at 4:15 p.m. in New York trading, the largest drop since July 1980, when Bloomberg data on the company begins.

Moody’s Investors Service and Standard & Poor’s cut their ratings for Dow Chemical in response to the Kuwaiti pullout.

The failed deal “substantially increases the likelihood that Dow’s credit profile will be weakened in any reasonable scenario,” Moody’s said in a statement.

The main reason the Kuwaitis cited for terminating the deal was the plunge in oil prices from the rich levels they were trading at when the K-Dow Petrochemicals joint venture was announced about a year ago.

“This decision was unexpected given Dow’s recent confidence that it would close the transaction, and is a significant development from both a strategic and financial profile standpoint,” S&P said in a statement. The venture “would have provided Dow with approximately $7 billion of after-tax cash proceeds to help fund the pending $19 billion acquisition of Rohm and Haas, including assumed debt.”

Some analysts believe that Dow Chemical’s debts may wind up being downgraded to junk once the dust settles.The economic recession and the tight credit market will amke it difficult for the company to operate now that the deal has fallen apart. Dow’s ratings “could fall below the Baa2 rating in a worst-case scenario,” Moody’s said.

However, Rohm & Haas said in a statement today the aborted deal “is not a closing condition for the proposed merger” and that it “continues to work diligently towards completing the proposed transaction with Dow in early 2009.”

Earlier in the month, Dow Chemical announced that it was closing 20 plants and temporarily suspending the operations at 180 others. They also announced that they were cutting 5,000 jobs – 11 percent of its workforce.