MIDLAND, Mich. (AP) -- Dow Chemical is in talks with Rohm & Haas to close its proposed $15.4 billion buyout of the specialty chemicals maker after federal regulators approved the deal, both companies said Friday.
Approval by the Federal Trade Commission was the last regulatory hurdle after the European Commission signed off earlier this month.
Philadelphia-based Rohm & Haas Co. said according to the agreement the acquisition -- first announced last summer -- must close within two business days of final regulatory approval.
Shares of Rohm & Haas jumped $7.28, or 12 percent, to $67.74, while shares of Dow Chemical Co. fell 14 cents to $14.24.
When the deal was first struck last July, Midland, Mich.-based Dow said the acquisition of Rohm & Haas and its specialty chemicals portfolio would give it a buffer against volatile commodities prices in the chemical market.
Commodity prices have since collapsed and Wall Street has been reshaped by a financial crisis, raising questions about the true value of Rohm & Haas and whether Dow paid too much.
Dow's market cap has dropped sharply since last July to about $13.2 billion, less than the $15.4 billion price it has agreed to pay for Rohm & Haas.
Making matters potentially worse, just days before Dow was to close a $17.4 billion joint-venture, a state-owned Kuwaiti company pulled out of the deal.
Dow had expected to walk away with more than $7 billion in cash which would have helped fund the Rohm & Haas acquisition, though Dow insists it does not need the money and is in talks to form another joint venture for its plastics division.
For now, the company could draw on a $13 billion, one-year bridge loan for Rohm & Haas.
That could leverage Dow's balance sheet and potentially jeopardize its investment-grade rating, which currently stands two notches about junk status. The company was downgraded by Moody's and Standard & Poor's right after the Kuwaiti deal collapsed.
Dow has "limited its options" and must now make tough choices to keep its rating, which determine how its debt is priced, Moody's Investors Service analyst John Rogers said.
It's unlikely the company will be able to extend the one-year bridge loan, so it must find additional sources of capital, he said.
"You can't have this additional debt without added equity and remain investment grade," Rogers said in a recent interview. "We're going to give them some time to get their house in order, but it's a couple months at most."
Dow has faithfully issued a quarterly dividend since 1912 and Chief Executive Andrew Liveris recently vowed that that would not change.
That has also caught the attention of ratings agencies like Moody's.
"If they take no actions and close the Rohm & Haas deal, the likelihood is that they would be downgraded to a low investment grade," Rogers said. "It seems to be that they want to be able to do everything, and that's what makes this difficult."