Court Backs Huntsman In Dispute Versus Apollo Mgmt, Hexion

Chemical maker Huntsman Corp. said a court has ordered private equity firm Apollo Management and its unit Hexion Specialty Chemicals Inc. to honor the terms of their $6.5 billion offer to acquire Huntsman.

Apollo and Hexion have been trying to back out of the deal, which was announced at the height of the private equity boom in July 2007.

Apollo and Hexion filed suit against Huntsman in June, arguing that the combined company would be insolvent if the deal went ahead. Huntsman countersued.

The Delaware Court of Chancery in Wilmington late on Monday rejected Apollo and Hexion’s claims and prohibited them from terminating the merger agreement.

In a statement, Hexion said it was disappointed by the court’s decision and was reviewing the decision and its options.

Judge Stephen Lamb in his ruling said if the deal did not close by October 1, the termination date for the merger would be extended until the court determined that Apollo and Hexion had complied with the order.

Huntsman Chief Executive Peter Huntsman said the chemical maker continues to be a strong company and he was gratified with the court’s ruling.

“We call on Hexion to complete the remaining actions required by the merger agreement in compliance with the court’s order and proceed to closing,” he said, in a statement.

Huntsman said that in addition to denying the relief sought by Apollo and Hexion, the court also found that Hexion had breached a number of obligations and covenants under the merger agreement.

Huntsman said it continued to seek damages exceeding $3 billion in its Texas lawsuit against Apollo and its partners Leon Black and Joshua Harris.

According to the terms of the agreement, Huntsman is entitled to a $325 million break-up fee in the event that the deal does not close.

Apollo and Hexion had also argued that they were not obliged to close the deal as Huntsman’s results had suffered from a material adverse effect (MAE). The MAE clause gives parties the right to walk away from a deal if there is a material change that affects the transaction.

However, the court in its post-trial opinion said that the seller has not suffered a material adverse effect, as defined in the merger agreement.

The opinion also noted that the Duff & Phelps’ insolvency report presented by Apollo and Hexion was an unreliable opinion.

“(The) insolvency opinion was produced with the knowledge that the opinion would potentially be used in litigation, was based on skewed numbers provided by Apollo, and was produced without any consultation with Huntsman management,” said Judge Lamb.

But, the court did note that the merger agreement does not allow Huntsman to force Hexion to close the deal.

“If all other conditions precedent to closing are met, Hexion will remain free to choose to refuse to close,” said Judge Lamb.

However, the court stated that if Hexion’s refusal to close results in a breach of contract, it will remain liable to Huntsman in damages.

(Reporting by Euan Rocha in New York and Savio D’Souza in Bangalore; Editing by Lincoln Feast, Dave Zimmerman)