Hexion, Alpha headed to court over mergers; SPACs drying up; markets fairly calm ahead of elections

By Cristal Cody

New York, Nov. 3 - The markets remained fairly calm on the eve of the presidential elections, though some companies opened the month with court action.

Hexion Specialty Chemicals received a trial date on Monday to address whether requirements from a commitment letter that would have funded its acquisition of Huntsman Corp. were met within the agreement's timeframe.

Alpha Natural Resources Inc. also went to court on Monday.

The company filed an action in the Delaware Court of Chancery to force Cliffs Natural Resources Inc. to hold its shareholders meeting as originally scheduled on Nov. 21.

Cliffs, which has proposed a $3.3 billion takeover of the coal producer, said Monday that it has rescheduled the meeting for December.

Meanwhile, the markets were slightly mixed, with the Dow Jones industrial average down 5.18, or 0.06%, to 9,319.83. The Standard & Poor's 500 index fell 2.45, or 0.25%, to 966.30, while the Nasdaq composite index rose 5.38, or 0.31%, to 1,726.33.

Never say never

Hexion isn't giving up on its $6.5 billion leveraged takeover of Huntsman Corp.

The New York Supreme Court on Monday granted the company a Jan. 8 trial date.

Hexion filed a lawsuit against Credit Suisse AG and Deutsche Bank AG last month to force the banks to honor their financing commitment letter, which expired on Saturday.

Credit Suisse and Deutsche Bank refused to finance the acquisition over concerns about the solvency of a combination of the two companies.

The court on Friday denied Hexion's request to require the banks to extend their financing commitment letter, which expired on Saturday.

Hexion, operated by private equity firm Apollo Management, also has tried to back out of the deal, but was ordered to continue with the merger by a Delaware court in September.

Huntsman will hold a third quarter earnings conference call on Thursday.

Hexion will discuss its third quarter results on Nov. 14.

Huntsman shares rose 1.88% to close at $10.29 a share in trading.

Alpha wants it the way it was

Alpha Natural Resources, the nation's largest supplier and exporter of metallurgical coal, a key ingredient in steel manufacturing, may be jockeying for a merger guarantee with its action in court on Monday, one analyst said.

"This could just be Alpha trying to shore up their position that Cliffs won't back out at the last minute," said Williams Burns, an analyst with Johnson Rice & Co.

Cliffs Natural Resources, a global mining and natural resources company, said in a statement Monday that Alpha's lawsuit has no merit and it will vigorously defend the action.

Cliffs said that it has rescheduled the special meeting for shareholders for Dec. 19.

Investors drove Cliff's stock up 11.67% to close Monday at $30.14 a share.

Alpha shares closed at $33.73, down 5.75%.

"The premium is in the 30% range, so the market doesn't believe the transaction will be completed," Burns said. "Normally it would be maybe a 2% premium."

SPACs drying up

MBF Healthcare Acquisition Corp. announced Monday that it had mutually terminated the $479 million proposed purchase of Critical Homecare Solutions Holdings Inc. from Kohlberg & Co. LLC on Friday.

Most of the equity for the deal was from a special-purpose acquisition company - but there was no chance of getting the special-purpose acquisition shareholders, which are mostly hedge funds, to approve the acquisition, a market source said.

New deals for SPACs are drying up, according to Renaissance Capital LLC.

"With two priced deals raising only $105 million, the SPAC market appears to be disappearing in a whimper," Renaissance Capital said in a third quarter review of SPACs from August, September and October. "Although roiling equity markets are certainly a factor in sluggish new SPAC issuance, a high ratio of liquidations to successful acquisitions (averaging 1:1 over the last 3 quarters) are signaling that this vehicle may not be viable."

Special-purchase acquisition companies generally have 18 to 24 months to make acquisitions, which must be approved by a 70% of shareholders. If the acquisition is not completed with the allotted time frame, the funds are refunded.

Of the 46 SPACs with yet-to-be-announced acquisitions that control more than $10 billion in capital, more than half of the funds must be deployed or liquidated by the end of 2009. The limited shelf life could provide a major obstacle, Renaissance said.

As "traditional sources of financing dry up, cash-strapped firms and SPAC underwriters should be clamoring to get deals done at bargain prices. While we have seen a slight uptick in merger announcements, SPAC investors are frequently choosing cash over uncertainty," the firm said.

Hedge funds pursuing a yield-to-trust strategy are a large chunk of existing SPAC ownership and will be a major hurdle for proposed acquisitions, "particularly those entities in need of cash to satisfy redemptions," Renaissance said. "Nonetheless, it is ironic that cash-heavy SPACs have frequently failed to close deals at a time when so many companies are struggling for access to equity capital."

MBF shares closed at $7.752, down 0.49%.

Mentioned in this article:

Alpha Natural Resources NYSE: ANR

Cliffs Natural Resources Inc. NYSE: CLF

Huntsman Corp. NYSE: HUN

MBF Healthcare Acquisition Corp. AMEX: MBH

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