June 15, 2011

FTC Denies Dow's Petition to Modify 2009 Settlement

In the latest chapter of the unhappily-ever-after merger between The Dow Chemical Co. and Rohm and Haas Co., the Federal Trade Commission today announced it has denied Dow's petition to modify a 2009 settlement requiring divestiture of a chemical facility in California.

Dow agreed to buy chemical maker Rohm and Haas in July 2008 for $18.8 billion – a substantial shareholder premium. But as the recession took hold, Dow tried to wriggle out of the agreement, citing falling demand for chemicals and the implosion of its joint venture with Kuwait. Rohm and Haas, however, was not about to let Dow off the hook, and sued the company in Delaware to force it to honor the contract. On the eve of trial, Dow backed down and closed the deal.

The FTC had already reviewed the transaction, requiring Dow to sell a range of Rohm and Haas assets after closing to a FTC-approved buyer. The problem came when Dow (as ordered) tried to sell an acrylic latex plant in Torrance, Calif.

It turns out that the FTC-approved buyer, Arkema Inc., did not want to buy either the plant or the land in Torrance. Instead, Arkema agreed to a long-term lease of the plant with an option to buy only the portion of the property where the plant is located. The FTC approved that lease to Arkema in 2010 and gave Dow a one-year extension to sell the remaining property.

Dow, represented by George Cary and Elaine Ewing of Cleary Gottlieb Steen & Hamilton, explained that it has since tried unsuccessfully to sell the whole site, and that it has not yet obtained the municipal approval it needs to subdivide it so it can sell the portion of the land where the plant is located to Arkema.

“Arkema made it unambiguously clear that Arkema was not interested in purchasing the entire Torrance site, which includes several industrial sites leased to and occupied by third parties,” wrote Cary.

Dow asked the FTC to modify the order and allow it to keep the land or to grant a three year extension for Dow to sell it.

The FTC said no. “After reviewing the application, the FTC found that Dow failed to make the required showing that the final order should be reopened, that modifying the order would be in the public interest, or that the FTC should grant the time extension,” according to the agency’s news release, “Further, competitive risks remain if Dow retains control of the Torrance Facility, the FTC found, and there is a strong public interest in Dow’s full compliance with the terms of the final order.”

According to the FTC, "the commission may, if it chooses, appoint a trustee to get the divestiture done, and in the meantime Dow still must pursue divestiture."