Dow announced on 12 February that it would slash its dividend from the 42 cents paid in December 2008 to 15 cents on 1 April 2009, citing “uncertainty in the credit markets, unprecedented lower demand for chemical products, the ongoing global recession and pending business issues”.

Kuwait’s Petrochemical Industries Company (PIC) cancelled its $17.4bn joint venture deal with Dow on 29 December 2008, under orders from the country’s Supreme Petroleum Council.

The US firm had expected to receive $7.5bn from PIC for its part in the venture, and $9bn in pre-tax profits from K-Dow. Dow had earmarked these funds for a $15.4bn acquisition of US specialty chemicals maker Rohm & Haas.

The company had also agreed a $13bn bridging loan in case the Rohm & Haas deal was completed before K-Dow.

Since the cancellation of the joint venture, the deadline for the second deal has passed. Dow is now believed to be paying a daily fine to Rohm & Haas for the failure to close the deal and Rohm & Haas is also suing Dow to finalise it.

Dow said in a 3 February filing that closing the merger would cause a downgrading of the company’s credit rating. This in turn would trigger a clause in its bridge loan agreement essentially leading to automatic default “with significantly greater debt than originally anticipated, and with earnings withering”.

Chemical sales have collapsed since the third quarter of 2008, with Dow’s sales by volume down 17 per cent in the last quarter of the year and plastics makers globally operating at around 70 per cent of capacity.

A Germany-based chemical business analyst tells MEED that Dow had “no choice” under the circumstances but to slash its dividend for what he says is the first time in almost 100 years.

“Kuwait broke Dow’s back financially on the Rohm & Haas deal,” the analyst says. “There is obviously a clear line between the cancelled deal and the dividend.”

Dow’s current situation showed how important it was to be in a strong financial position to make acquisitions in the current climate, the analyst added, given the current weak market for chemicals makers.