Dow Chemical Co. (DOW) warned Tuesday that it could face multiple debt defaults if forced to consummate its $15.3 billion merger with Rohm & Haas (ROH) and "jeopardize" both companies.

The world's third-largest chemicals group by revenue said in a court filing that closing the deal on the terms agreed last year would lead to "irreparable harm" and likely credit rating downgrades.

Dow Chemical Chairman and Chief Executive Andrew Liveris said the company's ability to fund a deal was hit by the slump in industry demand, with December volume likely to continue for a few quarters, if not longer. "The basic chemical sector is going to have a terrible '09," he said on a conference call after Dow reported a net loss of $1.55 billion for the fourth quarter.

Liveris called on Rohm to restart talks on the proposed deal after Dow failed to meet a closing deadline last week, citing funding and other difficulties.

Rohm & Haas later said in a statement that "Dow should honor its obligations and close the transaction."

Dow's fourth-quarter loss highlighted the company's continuing exposure to the weakening commodity chemicals business, which it had sought to address with the Rohm & Haas acquisition and a joint venture with the Kuwait Petrochemical Corp.

The collapse of the Kuwaiti deal in late December left Dow with a $9 billion funding gap for Rohm & Haas. Liveris said Dow was seeking arbitration with its erstwhile Kuwaiti partners and also suing a number of parties for more than $2.5 billion in damages.

He also said Dow was in "face-to-face" talks with a number of interested parties about the plastics business involved in the abortive Kuwaiti venture, while expressing hope that a deal could be revived.

'A 13-Month Year'

Dow has asked for a one-year extension on repaying any bridge loan used to refinance a Rohm & Haas deal, and Liveris said it is making "good progress" with the arranging banks.

He said the company is considering all options to maintain balance-sheet strength and its commitment to an investment-grade rating.

This includes its cherished dividend and a possible equity issue, though the latter is not "a top option."

The company has intensified the restructuring announced in December when industry volumes started to plummet.

Liveris said customers, notably in emerging markets, ran down stocks so dramatically at the end of 2008 that 2009 could become "a 13-month year" for business.

Targeted cost savings from the actions have been raised from $350 million to $500 million by the end of the year, and from $700 million to $750 million by the end of 2010.

Liveris said a decision about whether to close some idled capacity permanently would not be taken for two to three months.

"We see some signs of life [in demand] ... and I see that as a bonus," he added.

Warning To Rohm

Dow warned in its rebuttal to Rohm & Haas "of other unforeseeable consequences" if faced with a downgrade and the inability to issue commercial paper.

"A confluence of dramatic and unforeseeable shocks - to Dow, to the chemical industry as a whole, and to the banks and financial markets - has made it impossible to consummate Dow's planned acquisition of Rohm & Haas at once without jeopardizing the very existence of both companies," said the company in the 62-page filing.

Rohm & Haas last week sued to force Dow to close the merger, but Dow denied all conditions to its obligation to close have been satisfied.

Dow denied that it had breached the agreement, "intentionally or otherwise" or that Rohm had suffered a "material adverse effect" in its business.

Dow reported a fourth-quarter net loss of $1.55 billion, or $1.68 a share, compared with year-earlier net income of $472 million, or 49 cents a share. The latest quarter included $1.02 a share in charges from its restructuring and goodwill write-downs, among other items.

Revenue fell 23% to $10.9 billion as volume slid 17%, reflecting lower demand in all its operating segments and geographic markets.

Analysts polled by Thomson Reuters expected earnings of 7 cents a share on $13.37 billion in revenue.

Dow has announced plans to cut 5,000 full-time jobs, or 11% of its work force, close 20 plants and sell several businesses. Liveris also had suggested that Dow's dividend may be at risk.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

(Tess Stynes and Ana Campoy contributed to this report)

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