Jan. 26 (Bloomberg) -- Rohm & Haas Co., a specialty chemical maker, accused Dow Chemical Co. of breaking a $15.4 billion merger agreement and asked a Delaware judge to order the largest U.S. chemical company to complete the takeover.

Dow Chemical said it won’t close the deal on or before Jan. 27 as required under the accord due to “uncertainties” in funding as a result of the global financial crisis. Rohm & Haas’s complaint, filed today in Delaware Chancery Court in Wilmington, seeks an expedited one-day trial and enforcement of the buyout.

“The contract is solid as a rock,” said Lionel Melka, who helps manage $50 million, including Rohm & Haas shares, as chief investment officer of Geneva-based Bernheim, Dreyfus & Co. Rohm & Haas dropped 13 percent while Dow fell 7.6 percent.

The merger accord requires Midland, Michigan-based Dow Chemical close the deal by Jan. 27 since all required regulatory approvals have been received, Philadelphia-based Rohm & Haas said in a statement. Dow Chemical cited a decision by the Kuwait government to cancel a planned joint venture last month as reason for the delay. That deal would have netted the firm $9 billion.

“The failure of the K-Dow venture does not provide Dow with a basis for refusing to close,” lawyers for Rohm & Haas alleged in the lawsuit. “Dow’s obligation to complete the merger is not conditioned on financing of any kind.”

CEO Letter

Dow Chemical Chief Executive Officer Andrew Liveris refused to commit to closing at a future date, telling Rohm & Haas CEO Raj Gupta in a Jan. 25 letter that “we will be able to determine our ability to close the transaction by June 30,” according to the complaint.

Dow Chemical said it sought “multiple paths” to complete the transaction since learning in December of Kuwait’s cancellation.

“The world has changed significantly, and we still do not see the bottom of this unprecedented demand destruction,” Liveris said in a statement.

Even though Rohm & Haas has a “very tight” merger agreement, Dow may be able to negotiate a lower purchase price around $50 a share, Edward Yang, a New York-based analyst at Oppenheimer & Co., said in a report. The leverage of the combined company would be “quite frightening” if earnings deteriorate rapidly, he said.

“Without the K-Dow cash and the concurrent meltdown in chemicals sector fundamentals, Dow can’t afford to pay Rohm & Haas $78 a share in cash,” Yang said, referring to the deal price. “Given a choice between insolvency fears and a court fight, it appears Dow is ready to gird its lawyers.”

‘Market Perform’

He rates Rohm & Haas shares “market perform” and doesn’t have a recommendation on Dow.

Rohm & Haas won’t agree to cut the price because there is no rationale for a reduction now that all approvals are in hand, Bernheim’s Melka said.

Dow may be trying to delay closing in order to convert its one-year bridge loan into a multiyear term loan, Melka said. That would give the company more time to pay down borrowings by selling assets, he said. Lack of financing isn’t a reason to cancel the merger under the contract, Melka said.

Dow is looking for a new venture partner and may sell some commodity units to raise at least $7.5 billion this year, Liveris said on Jan. 6. He plans to maintain Dow’s dividend and investment-grade credit ratings.

The price Dow must pay for Rohm & Haas began increasing after Jan. 10 by 8 percent a year, or about $100 million a month, according to the merger deal. The price will rise until July 10.

11 Percent

Dow last month announced plans to eliminate 11 percent of its workforce and shut 200 factories, 20 of them permanently, amid a deepening global slowdown that has slashed demand for plastics and chemicals used to make houses and cars.

In its complaint, Rohm & Haas alleged Dow has in place committed financing that exceeds the total purchase price of the deal by $2 billion.

Dow Chemical spokesman Dave Winder didn’t return a call seeking comment on the lawsuit.

Rohm & Haas fell $8.72 to $57.10 in New York Stock Exchange composite trading. Dow Chemical dropped $1.09 to $13.24.

In its statement today, Dow said it’s interested in further discussions over the acquisition, an indication that it’s attempting to lower the price, said Larry Hamermesh, a professor at the Widener University Law School and an expert on Delaware corporate law.

“You don’t get to renegotiate any contract you’re in just because you don’t like it anymore,” Hamermesh said in a phone interview. “Buyers often claim that, and it hardly ever works.”

Antitrust Clearance

Dow lobbied to delay antitrust clearance without consulting Rohm & Haas, according to the complaint.

Gupta and Liveris met on Jan. 19 in Philadelphia to discuss the matter, at which time Liveris requested until June 30 to close the transaction, according to the complaint.

The men met again on Jan. 20 with both companies’ general counsels, according to court papers. Dow refused to commit that it would close the merger if given more time. Rohm & Haas denied the request, according to the complaint.

The Federal Trade Commission granted final antitrust clearance on Jan. 23, triggering a closing date under the terms of the merger agreement of no later than Jan. 27. On Jan. 24, Dow claimed it was “economically disadvantageous,” to close on schedule, according to court filings. Liveris followed up with a letter to Gupta the following day, the plaintiffs said.

Failure to close the deal on schedule subjects Rohm & Haas to “intolerable uncertainty” and its business will suffer as a result from losing employees, customers and suppliers, lawyers for the company said in the court filing.

They claim that Dow is able to consummate the deal with $13 billion in debt financing and an additional $4 billion of preferred equity financing committed to fund the merger.

The price Dow must pay for Rohm & Haas began increasing after Jan. 10 by 8 percent a year, or about $100 million a month, according to the merger agreement. The price will rise until July 10. The fee only applies if the merger closes, lawyers for Rohm & Haas said in a separate court filing today.

The case is Rohm and Haas Co. v. Dow Chemical Co. CA4309, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Sophia Pearson in Wilmington, Delaware, at spearson3@bloomberg.net; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; Jack Kaskey in New York at jkaskey@bloomberg.net.

Last Updated: January 26, 2009 17:32 EST