Kuwait scrapped a deal to buy a 50 percent stake in Dow Chemical Co.’s plastics-making unit, depriving Dow of $9 billion it planned to put toward the acquisition of Rohm & Haas Co.
Dow still gets a $2B breakup fee from Kuwait's Petrochemical Industries Co., but it now has to seek nearly the full value of the $13B bridge loan to buy Rohm & Haas (ROH). That is a very questionable proposition given the credit market's logjam.
A few months ago I sold short April 09 calls on Rohm & Haas at 80 based on the proposed acquisition price of 78. This latest announcement makes my bet very safe, as it will take some heavy lifting from Dow to make good on that price now. Dow's stock should open down tomorrow since it still appears committed to this transaction by taking on a huge debt load. If Dow abandons this deal at some point, its share price should pop as shareholders breathe a sigh of relief.
Nota bene: Anthony J. Alfidi is short uncovered calls of ROH at the time this commentary was published.
