After acquisition: Dow-Rohm offloading

The landmark Rohm & Haas Co. headquarters building on Independence Mall is for sale, and more than 100 employees there have been told their jobs will end later this month. Many more will follow.

Around the globe, Dow Chemical Co. - which with great reluctance was forced to complete its purchase of Rohm & Haas for $15.7 billion - is shopping its businesses, factories, and refineries to raise cash.

The pressing goal: deleveraging the Dow Chemical balance sheet. Dow's debt to bondholders and banks almost doubled to $23.8 billion in its most recent quarter, the first with Rohm & Haas under its belt.

Interest payments and special dividend payments soared 342 percent to $667 million for the second quarter.

"We are working as hard as we can to meet our milestones," Dow spokesman Bob Plishka said yesterday.

Seven months ago, Dow Chemical feared banks could seize control of the company if it was forced to close on its acquisition of Rohm & Haas, a 100-year-old specialty-chemical company. The Dow-Rohm deal was announced in the summer of 2008, just before the economy spun out of control.

Dow attorney David Bernick, who was retained to wage the legal fight against Rohm & Haas purchase, gloomily predicted that Dow Chemical would be "hobbled financially."

There would be "no light at the end of the tunnel" for the 60,000 employees in Dow-Rohm, Bernick told Delaware Judge William B. Chandler 3d and Rohm & Haas attorneys during the court battle.

Dow eventually agreed to a court settlement and the rancorous deal closed April 1.

The statistics disclosed Friday in its second-quarter financial report were grim. Dow Chemical reported that sales fell 31 percent to $11.3 billion when compared with a year earlier. Dow's losses attributed to common stockholders were $486 million, mostly because of restructuring charges.

But Dow says there is cause for hope. Dow Chemical chief executive officer Andrew Liveris said that manufacturing trends were improving and that the recession might have bottomed out. Dow is one of the world's largest manufacturers of basic plastics, in addition to many other products, including herbicides.

Bill Selesky, an equity analyst with Argus Research Corp., of New York, said Dow's stock price had rebounded because of the popularity of basic materials stocks and confidence on Wall Street that Dow will not collapse.

Dow's stock fell to $6.33 March 9, the day before it reached the court settlement to close the Rohm & Haas deal. The stock closed yesterday at $23.64.

Dow's debt, Selesky said, remains a big concern. It keeps growing "like the federal deficit," the analyst said. "It's a huge chunk of change. I don't think it's threatening to the point that it will put the company out of business. But they need a few things to go right." Those would be a stronger global economy, higher run rates for Dow factories, and asset sales, he said.

Dow negotiated the deal for Rohm & Haas when it believed it could sell a big industrial chemical business to the Kuwaiti government for $7 billion in cash. The Kuwaiti deal cratered, and Dow financed Rohm & Haas with short-term bank loans - like buying a car on a credit card.

Dow now has to find "synergies" between the Dow and Rohm operations. It paid a big premium - $78 a share - for the Philadelphia company, believing that combining the Dow and Rohm operations was more valuable than the simple sum of the assets of the two companies.

The amount of goodwill and intangible assets listed on Dow's balance sheet rose to $18.6 billion June 30 from $4.2 billion in December. Goodwill and intangibles reflect the inherent value of Rohm & Haas' relationships with its customers, trademarks, research, and other hard-to-quantify assets.

Dow has said 2,500 to 3,500 Rohm & Haas employees will lose their jobs, or about one in five, according to regulatory filings with the Securities and Exchange Commission. The Philadelphia headquarters will take the initial brunt. One Philadelphia employee who asked that his name not be used said the Philadelphia headquarters could shrink to three floors from nine.

Rohm & Haas employed 15,500, including about 3,000 in the Philadelphia area, before the merger.

Pierre Brondeau, 51, a former Rohm & Haas executive who was to lead a Philadelphia-based division for Dow Chemical, suddenly retired last week. Dow replaced him with longtime Dow executive Jerome Peribere, 55.

Dow cannot cut Rohm & Haas operations too deeply because it has to grow Rohm's former businesses to make the acquisition pay off, experts say. Rohm & Haas manufactures and sells additives for paints and supplies the electronics industries with materials.

Brian McPeak, a Rohm & Haas spokesman, said in a July e-mail that Dow-Rohm would maintain a visible presence in the city. The company has told Pennsylvania state authorities that 112 employees would leave the Philadelphia headquarters by the end of August, but that "it is fair to say that the total impact to the corporate office workforce will be substantially higher," McPeak wrote.