Shares in Dow Chemical Company plunged by 20 per cent yesterday, the biggest fall in nearly 20 years, as investors reeled from Kuwait’s surprise decision to scrap plans for a joint venture with the chemicals manufacturer.

The dissolution of the $17.4 billion (£11.9 billion) joint venture raised fears that Dow Chemical’s $15.3 billion takeover of Rohm and Haas, an American rival, was in danger of being scrapped. Dow had planned to use the proceeds from its joint venture with Kuwait to pay part of the cost of the acquisition. The rest of the cash was to come from a $3 billion equity investment from Berkshire Hathaway, Warren Buffett’s investment vehicle, an injection of $1 billion from the Kuwait Investment Authority and a bridging loan from banks. If the takeover fails, Dow faces a $750 million termination fee.

Shares in the Philadelphia-based Rohm and Haas fell heavily yesterday, declining by 16 per cent to $53.34. Its stock had risen by 64 per cent since Dow’s $78-a-share offer in July.

Shareholders registered disappointment by driving Dow’s shares down in their biggest fall in at least 28 years after the company declined to give an update on whether its takeover would go ahead. Moreover, traders said that Dow’s price fall could have been worse had continued fighting in the Gaza Strip not pushed oil prices up and helped to bolster market sentiment.

Rohm and Haas insisted on Sunday that the deal with Dow was not contingent on the joint venture going ahead. Dow had said previously that it could complete the deal without the proceeds from the Kuwaiti agreement. Hassad Ahmed, an HSBC analyst, predicted that Dow would try to back away from the Rohm and Haas bid, while other analysts expect lenders funding part of the bid for Rohm and Haas to push Dow to alter the terms of its offer.

It was also a blow to the plans of Andrew Liveris, the Dow chief executive, to move the Michigan-based company away from low-margin commodity chemicals and into higher-margin speciality chemicals, analysts said. Kevin McCarthy, a Banc of America Securities analyst, described the takeover of Rohm and Haas as a key part of Dow’s strategic plan. Kuwait’s state-run Petro-chemical Industries Company signed a deal with Dow this month to pay $7.5 billion for a 50 per cent stake in several chemical plants. The joint venture, called K-Dow Petrochemicals, had been scheduled to start operation on January 1, but the deal was opposed by some members of the Kuwaiti Cabinet, who said that it was not economically viable in the present financial climate and amid falling petrochemical sales. Rebel politicians had threatened to question publicly Sheikh Nasser al-Mohammed al-Sabah, the Kuwaiti Prime Minister, over what they described as an overpriced investment.

Under pressure from Kuwait, Dow had already cut the value of the joint venture by 8 per cent since its announcement. On Sunday, however, the Kuwaiti Cabinet said that the new business was still too risky, particularly as it was impossible to forecast the effects of the global financial meltdown on international companies. Kuwait’s Supreme Petroleum Council, the country’s highest oil authority, cancelled the contract with Dow.

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