(Reuters) - Dow Chemical’s DOW.N plan to buy rival Rohm and Haas ROH.N may not be affected by Kuwait’s decision to scrap a deal to form a $17.4 billion petrochemical joint venture with Dow, an analyst at Barclays Capital said.
The Rohm and Haas transaction is fully financed by a one-year syndicated bridge loan and convertible preferred investments by billionaire Warren Buffett’s Berkshire Hathaway (BRKa.N) and the Kuwait Investment Authority, analyst Sergey Vasnetsov said.
Earlier this month, Kuwait’s state-run Petrochemical Industries Co signed a deal with Dow to launch the joint venture, K-Dow Petrochemicals, and was due to pay $7.5 billion.
Dow had planned to use the proceeds from the deal to repay a large part of $13 billion in debt it will have to shoulder once its acquisition of Rohm & Haas closes.
“Of course, $7.5 billion of incoming cash would have put Dow in a better, less risky position, but Rohm and Haas transaction is provided for already,” the analyst said.
Vasnetsov downgraded Dow Chemical to ”equal weight“ from overweight,” saying the largest U.S. chemical company’s stock may become more risky without the joint-venture deal and was without a positive catalyst for a while.
Barclays said given Dow’s need to maintain close and friendly relationships in other joint ventures, it does not expect the company to recover a meaningful compensation for the breakup, although the joint venture agreement specifies a maximum of $2.5 billion in damages.
Vasnetsov, however, said the joint-venture idea might come back in a few years as the concept makes sense for both parties.
The analyst cut his price target on the stock to $16 from $25. Shares of Dow Chemical were down 20 percent at $15.14 in afternoon trade Monday on the New York Stock Exchange.
Reporting by Mary Meyase in Bangalore; Editing by Vinu Pilakkott