Court finds in favor of Huntsman, orders Hexion to complete merger

By Lisa Kerner

Charlotte, N.C., Sept. 30 - The Delaware Court of Chancery decided in favor of Huntsman Corp. and ordered Hexion Specialty Chemicals, Inc. to perform its covenants under the companies' merger agreement, Huntsman announced on Tuesday.

Hexion and Apollo Management, LP had asked the court to determine that Hexion is not obligated to consummate the merger, it was previously reported.

According to Huntsman, the court also ordered that if the transaction is not closed by Wednesday, the merger agreement termination date will be extended until the court decides Hexion has fully complied with the order.

Huntsman said the court denied relief sought by Apollo and Hexion, which claimed Huntsman was not entitled to a $325 million break-up fee.

The court also rejected a claim by Apollo and Hexion that Huntsman had suffered a material adverse effect and that a solvency certificate or opinion could not be provided for the combined Hexion/Huntsman entity.

On Sept. 26, Huntsman said it engaged American Appraisal Associates, Inc. to provide a solvency opinion in connection with the merger. American Appraisal confirmed it was able to issue a written opinion stating the combined company would be solvent, it was previously reported.

"We are disappointed by the court's decision. We are reviewing the decision and our options," Hexion said in statement.

The company "remains well positioned to service its customers, compete and grow globally," Hexion added.

"We have claimed all along that Apollo would resort to any means necessary to break a legal and binding contract," Huntsman founder and chairman Jon M. Huntsman said in the company's release. "Apollo was dishonest and untruthful and lost the case."

Huntsman said it is continuing to seek damages of more than $3 billion in its Texas lawsuit against Apollo and its partners Leon Black and Joshua Harris. The company filed the suit in June, claiming that Apollo induced it to terminate its prior merger agreement with Basell AF in favor of a transaction with Apollo affiliate Hexion.

On July 12, 2007, Hexion agreed to acquire Huntsman in an all-cash transaction valued at approximately $10.6 billion, including the assumption of debt. Huntsman shareholders approved the deal in October 2007.

In June, Hexion said the capital structure agreed to for the combined company is no longer viable and that completing the merger would render the combined company insolvent. The company blamed Huntsman's increased net debt and its lower-than-expected earnings and declined to extend the merger agreement, a prior Hexion news release said.

'Breaches were knowing and intentional'

The opinion and court order were included in a form 8-K filed with the Securities and Exchange Commission.

"The issues in this case relate principally to the cost of the merger and whether the financing structure Apollo and Hexion arranged in July 2007 is adequate to close the deal and fund the operations of the combined enterprise," vice chancellor Stephen P. Lamb of the Court of Chancery of the State of Delaware said in his opinion. "The order the court is today issuing will afford the parties the opportunity to resolve those issues in an orderly and sensible fashion."

The court entered judgment:

• Declaring that Hexion and Nimbus Merger Sub Inc. have breached their obligations and covenants under specific sections of the July 12, 2007 merger agreement and that the breaches were knowing and intentional;

• Ordering Hexion and Nimbus to use their reasonable best efforts to satisfy on a timely basis all terms, covenants and conditions set forth in the commitment letter as defined in the merger agreement and consummate the financing;

• Enjoining Hexion, Nimbus and all of their respective directors, officers, principals, employees and other affiliates from taking any further action that could materially impair, delay or prevent consummation of the financing or any alternate financing, unless Huntsman provides its prior written consent;

• Prohibiting Hexion or Nimbus from terminating the merger agreement; and

• Ordering Hexion and Nimbus to take all actions necessary to obtain antitrust approval for the merger by Thursday.

Lenders told to cooperate

Huntsman also sued affiliates of Credit Suisse and Deutsche Bank, the lenders who had committed financing for the proposed merger with Hexion, in Montgomery County, Texas.

In the lawsuit, Huntsman alleged that the banks were conspiring with Apollo to interfere with Huntsman's previous merger agreement with Basell, interfere with the later merger agreement with Hexion and "usurp for their own benefit substantial and valuable rights that belonged to Huntsman," according to a Huntsman statement.

On Tuesday, district judge Fred Edwards of the Montgomery County Texas District Court awarded a temporary restraining order in favor of Huntsman, preventing the banks from taking any action that could be expected to "prevent consummation of the financing contemplated by the agreement between the banks and Hexion."

Based in Columbus, Ohio, Hexion makes thermoset resins. Huntsman is a Salt Lake City manufacturer of differentiated chemicals and pigments.

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