Jun 20 2008
Hexion Specialty Chemicals, Inc. announced today that it and related entities have filed suit in the Delaware Court of Chancery to declare its contractual rights with respect to its $10.6 billion merger agreement with Huntsman Corporation (“Huntsman”) (NYSE: HUN). Hexion said in the suit that it believes that the capital structure agreed to by Huntsman and Hexion for the combined company is no longer viable because of Huntsman’s increased net debt and its lower than expected earnings. While both companies individually are solvent, Hexion believes that consummating the merger on the basis of the capital structure agreed to with Huntsman would render the combined company insolvent.
The suit alleges that in light of this conclusion, Hexion does not believe that the banks will provide the debt financing for the merger contemplated by their commitment letters. Hexion stated in its suit that, while it will continue to use its reasonable best efforts to close the transaction, which includes obtaining all necessary antitrust and regulatory approvals as required by the merger agreement, it does not believe that alternate financing will be available.
Hexion disclosed in the filing that its Board of Directors has received an opinion from Duff & Phelps, LLC, a leading provider of independent financial advisory and investment banking services, concluding that, based on the capital structure agreed to by the parties at the time the merger agreement was signed, the combined company would be insolvent based on the fact that it would not meet the standard tests of solvency and capital adequacy set forth in the opinion.
The suit also alleges that in light of the substantial deterioration in Huntsman’s financial performance, the increase in its net debt and the expectation that the material downturn in Huntsman’s business will continue for a significant period of time, Huntsman has suffered a material adverse effect as defined in the merger agreement.
“While both Hexion and Huntsman can be successful as separate companies, they cannot now support the debt load that was agreed to at the time the transaction was put together,” said Craig O. Morrison, Hexion’s Chairman, President and CEO. “We continue to have enormous respect for Huntsman, the Huntsman family and management team and still believe that a combination of the two companies would offer significant strategic benefits. However, the financing for the acquisition is predicated on a certain level of financial performance and, given the increase in Huntsman’s total debt and decrease in earnings, Hexion does not believe that the transaction can be completed.”
Mr. Morrison continued: “While this development is disappointing, Hexion – with its long-dated, stable capital structure, no significant debt maturities until 2013, and with more than $475million in liquidity -- remains very well positioned to service our customers, compete and grow globally.”