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Dow builds for future

Dow Chemical Co. said Wednesday it has closed on its $16.5-billion buyout of Rohm & Haas Co., a deal it hopes will fuel growth in the high-margin specialty chemicals market.

NEW YORK — Dow Chemical Co. said Wednesday it has closed on its $16.5-billion buyout of Rohm & Haas Co., a deal it hopes will fuel growth in the high-margin specialty chemicals market.

Rohm & Haas will form the core of an advanced materials unit that is expected to have $14 billion in annual sales, Midland, Mich.-based Dow said.

The Rohm & Haas brand will disappear and its stock will cease trading on Wednesday, Dow said.

“The closing of this transaction strongly positions Dow for the future by transforming our business portfolio,” Dow chairman, chief executive and president Andrew Liveris said in a statement.

“We are committed to delivering on a clear and measurable plan designed to meet the needs of our investors, employees, customers and suppliers, even in this current challenging macroeconomic environment.”

Late Wednesday, Dow said it has agreed to sell Morton Salt to German fertilizer maker K+S Aktiengesellschaft in a deal valuing the former Rohm & Haas unit at $1.675 billion. The divestiture is expected to close in mid-2009.

The company said the sale, together with prior actions such as slashing its dividend and negotiating better terms on its bridge loan, will trim Dow’s bridge loan debt to about $7.5 billion from $13 billion. Dow said it has almost replaced the cash shortfall created by the failure of its Kuwaiti joint-venture transaction to close.

Dow’s execs have “got a lot of work ahead of them,” said Gabelli & Co. analyst Robert Felice.

Dow took on much more debt than originally planned for the Philadelphia-based company, a negative on Wall Street amid the financial downturn. Additionally, much of the funding for the deal came from a $10-billion loan that becomes more expensive after a year.

A successful integration is necessary to boost sales and reduce that burden, Gabelli said.

Meanwhile, Standard & Poor’s Ratings Services cut its corporate credit and senior unsecured debt rating on Dow to “BBB-” from “BBB.” The new rating is one notch above junk status.

S&P kept Dow on CreditWatch with negative implications, implying a downgrade is possible.

“We believe the transaction is an important strategic initiative for Dow and consistent with its efforts to bolster the breadth of its specialty product offerings but it will meaningfully stretch the financial profile to a level beyond what we consider consistent with the former ratings,” S&P analyst Kyle Loughlin.