Dow Chemical and Rohm & Haas, which will face off in a Delaware court next Monday to determine whether Dow must complete its $78-a-share deal to acquire Rohm & Haas, are engaged in talks to find a resolution to their dispute, CNBC has learned.
The talks, however, are far from certain to produce an agreement, according to sources.
The discussions are centered on a proposal from Rohm & Haas' two largest shareholders—the Haas Family Trust and the hedge fund Paulson & Co.—which would involve those two firms taking their proceeds from a Dow purchase of Rohm & Haas and investing that money back in Dow in the form of a preferred security.
A month ago, in an open letter to Dow Chemical, John Paulson, whose firm owns 19 million Rohm & Haas shares, urged Dow to complete the deal, suggesting among other things that it cut its dividend to a penny and sell $4 billion worth of common stock post closing to give it the financial where withdrawal to complete a deal and stay financially strong.
The Haas Family and Paulson control roughly $3 billion worth of Rohm & Haas stock.
Investors are hoping that the cash infusion to Dow in the form of a preferred could prevent a credit downgrade of Dow’s debt and thereby alleviate its concern over carrying on the deal.
Dow is believed to be meeting the rating agency Standard & Poor's on Thursday in order to gauge whether the plan would work to prevent a downgrade.
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Still, it remains uncertain that even with an approval from the rating agencies, Dow would move ahead with a deal, especially if it does not involve a price cut.
Officials at Rohm & Haas and Dow and their advisors declined to comment. Paulson & Co. and Haas Family have not returned calls.
Dow Shares Hit 24-Year Low
Dow shares hit a new 24-year low on Thursday ahead of the trial.
Alongside a broad-based pummeling of U.S. stocks, shares of Dow slid to $6.31—a price last seen in April 1985—before partly recovering to about $6.70 after CNBC's report on the settlement talks.
- Reuters contributed to this report.