Thursday, February 5, 2009

Paulson Angry After Finally Losing Money, Goes Activist

Hell hath no fury like the only hedge fund manager who is making money scorned. In a shocking turn of events for Paulson's M&A arbitrage fund (i.e. getting totally blown out of the water on his 18.9 million shares in the chemical maker Rohm and Haas), Paulson sent a letter to Andrew Liveris, CEO of Dow Chemical in which the manager presents a list of demands that has to be met ultimately leading to the closing of the Rohm and Haas acquisition, or else...And who would want to be on the "or else" side of that equation after the way Paulson shorted RBS and Barclays almost out of existence (just kidding, we are not suggesting anybody shorting these two had anything to do with their stock trading at penny stock levels).

Among the items urged to be considered:

  • Dow should temporarily reduce its dividend to $0.01/share (or permanently, JP doesn't really care, he just wants his M&A arb fund not to show red ink for the first time ever)
  • Sell $4 billion in new common equity (guaranteed to fetch a premium valuation)
  • Issue bonds to reduce the bank financing portion of the deal (leverage is good. very good)
  • All of the three (again, see red ink comment)
As a phenomenal case study Paulson, of course, cites InBev's acquisition of Budweiser (in which Paulson made a boatload of money).

Paulson ends the letter with this ominous warning:
We suggest that Dow can follow the same strategy as InBev and close and refinance the Rohm & Haas acquisition. As we previously indicated, depending on the terms we would have a high interest in participating in any equity or hybrid security offerings. We also suggest that the Board act quickly in closing the transaction as you risk further damage to your shareholders by unnecessarily delaying the closing.

Amusingly Dow's shareholders would obviously be further damaged if Dow's board were to follow Paulson's advice to close the ROH deal at a stupid valuation. However, our advice to Liveris: don't piss off Paulson... our money would not be on Dow. Sphere: Related Content
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