Buffett and international funds fill financing void

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Dow Chemical Co, which is buying rival Rohm and Haas Co for $15.3 billion (7.8 billion pounds), followed the lead of candy maker Mars Inc in tapping outside investors for funding.

The deal, the third-largest of 2008, includes an equity investment by billionaire Warren Buffett's Berkshire Hathaway and the Kuwait Investment Authority in the form of convertible preferred securities for $3 billion and $1 billion, respectively.

Dow has also secured $13 billion of debt financing from Citigroup, Merrill Lynch and Morgan Stanley. Dow aims to pay some of this debt immediately after receiving the proceeds from its planned joint venture with Kuwait Petroleum Corp.

The presence of outside help from Buffett echoed the agreement by M&M's maker Mars in April to buy the No. 1 chewing gum manufacturer, Wm Wrigley Jr Co, for $23 billion.

"I think that in a tough credit market you really have to be creative in finding sources to get your transactions done," said Bob Filek, a partner with PwC Transaction Services.

"It shows some of the creativity in financing. People looking at minority investors, at specialized institutions, at groups overseas, are more likely to be able to get deals closed," he said.

The motivation to get creative with financing comes after a year of tight credit markets, several collapsed mergers, and massive writedowns by banks. Private equity firms have abandoned the $10 billion-plus transactions seen during the buyout boom, and blue chip corporations have brought in outside investors to spread the risk, even on smaller deals.

With deal financing more difficult and costly to secure, U.S. merger activity in the first half of the year dropped 29 percent, and private equity dealmaking dropped 85 percent, according to Thomson Reuters data.

"You are seeing innovation here, driven by the retreat of leveraged buyout funds," said Columbia University Law School professor John Coffee.

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