UPDATE 4-Dow, Rohm shares fall on concern over deal

(Adds S&P, Moody's downgrade in paragraphs 20 and 21)

By Michael Erman and Jui Chakravorty Das

NEW YORK, Dec 29 (Reuters) - Shares of Dow Chemical (DOW.N) and Rohm & Haas ROH.N plunged more than 16 percent on Monday after Kuwait scrapped a joint venture with Dow, potentially upsetting its plans to buy rival Rohm & Haas. [ID:nLS308821]

Dow, the largest U.S. chemical company, could be hurt even if it goes ahead with the Rohm & Haas buy, as it would be saddled with a large debt load from the deal, analysts said.

Dow had planned to use proceeds from the joint venture with Kuwait's state-run Petrochemical Industries Co to repay a large part of the debt financing for the $15.3 billion Rohm & Haas acquisition.

Dow was to receive $9 billion from the Kuwaiti deal.

Analysts said Dow now would be under pressure to renegotiate its bid for Rohm & Haas or, if possible, walk away from the deal.

Midland, Michigan-based Dow agreed in July to buy Rohm & Haas for $78 a share to broaden its specialty product offerings. The deal carries a termination fee of $750 million payable to Rohm & Haas.

HSBC analyst Hassan Ahmed said Dow should be looking for ways to extricate itself from the deal. Without the Kuwaiti joint venture, Dow would have to tap into difficult credit markets to be able to shoulder the transaction, he said.

Dow's transformation plan is built on two legs: the $17.4 billion Kuwaiti joint venture and the Rohm & Haas deal, Ahmed said.

"When one leg of the two-leg story has fallen off, how can they stand on just the Rohm & Haas deal?" he asked.

In the past, Dow has said it could close the Rohm & Haas deal without the funds from the Kuwaiti joint venture.

To walk away from the deal, Dow would likely have to prove that Rohm & Haas' business had suffered a "material adverse event" since the deal was signed.

Dow declined to comment on whether the joint venture's collapse would affect its plan to buy Rohm & Haas.

Rohm & Haas said in a statement on Sunday that completion of Dow's joint venture was not a condition for the closing of the acquisition. It said it was working to complete the deal early in the new year.

DOW'S DIFFICULTIES