Street Slacks After Dow Deal Crumbles

Street Slacks After Dow Deal Crumbles

Steve Schaefer, 12.29.08, 12:20 PM EST

Kuwait bailed on a $17.4B joint venture with the company, dragging the major indexes down.

Dow Chemical Co.

12/29/2008 3:59PM ET

• $15.33
• -$4.01
• -20.73%

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Rohm and Haas Company

12/29/2008 3:59PM ET

• $53.40
• -$10.16
• -15.98%

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United States Oil Fund, LP

12/29/2008 3:59PM ET

• $30.86
• $1.76
• 6.05%

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BATS Real-Time Market Data by Xignite

U.S. markets wobbled Monday, as investors weighed the impact of a collapsed petrochemical deal against good news for a failed bank.

Dow Chemical (nyse: DOW - news - people ) was reeling, after Kuwait said it was pulling out of a $17.4 billion joint venture, which was scheduled to begin at the start of the New Year. By scrapping the deal before Jan. 1, Kuwait dodged having to pay a $2.5 billion breakup fee.

Investors were pondering the impact of the collapsed venture on Dow's acquisition of rival Rohm and Haas (nyse: ROH - news - people ). Dow had planned to use proceeds from the Kuwait deal to finance part of its $15.0 billion purchase of Rohm & Haas. Citigroup analyst P.J. Juvekar said the collapse of the Kuwait deal was a huge negative for Dow investors, and that the company should try to protect its shareholders by renegotiating the Rohm and Haas takeover, or walking away and paying a termination fee. (See "Kuwait, Dow Chemical Deal Fizzles.")

Dow shares slumped $3.45, or 18.7%, to $15.05, Monday morning; Rohm and Haas tumbled $11.91, or 18.7%, to $51.65.

On a broader scale, the Dow Jones industrial average was off 92 points, or 1.1%, to 8,424 by midday; while the S&P 500 fell 10 points, or 1.2%, to 862; and the Nasdaq sank 28 points, or 1.8%, to 1,503.

Financial stocks softened, despite encouraging news regarding one of their fallen brethren. The Federal Deposit Insurance Corp. is nearing a deal to sell assets of failed bank IndyMac to a group composed of private equity firms J.C. Flowers and Dune Capital Management, and hedge fund Paulson & Co. According to reports cited by TradeTheNews.com, the consortium is close to buying the bank, its 33 branches, its reverse-mortgage unit and a $176.0 billion loan-servicing portfolio. The FDIC seized the assets of IndyMac, which had massive exposure to the subprime mortgage meltdown, in July.

Oil prices were on the rise, as Israel's air strikes against Hamas in Gaza jogged geopolitical fears. Crude came off its highs despite the turmoil, but traded up 35 cents, at $38.06 a barrel, heading toward the afternoon. United States Oil Fund (nyse: USO - news - people ), an exchange-traded vehicle that invests in crude and other products, gained 15 cents, or 0.5%, to $29.25.