Banks refuse to fund merger of Huntsman, Hexion Specialty Chemicals

By Lisa Kerner

Charlotte, N.C., Oct. 28 - Huntsman Corp. and Hexion Specialty Chemicals, Inc. were ready to finally complete their proposed merger on Tuesday morning; however, the banks that agreed to finance the transaction backed out.

Counsel to affiliates of Credit Suisse and Deutsche Bank said they do not believe that the solvency opinion of American Appraisal Associates and the solvency certificate of Huntsman's chief financial officer meet the condition of the financing commitment letter, according to a Huntsman news release.

To satisfy a condition in Hexion's agreement with the bank affiliates, Huntsman planned to request an updated solvency opinion from American Appraisal for delivery at the merger's close, it was previously reported.

Hexion said it intends to work with the banks to try to complete the merger.

If the banks do not fund their commitment, both companies will enforce their contractual rights, the release said.

On Monday, Huntsman investors agreed to make an additional cash commitment of approximately $217 million, and funds managed by affiliates of Apollo Management, LP agreed to make an additional cash equity investment of $210 million in Hexion to help bring the merger to a close.

Hexion agreed in July 2007 to acquire Huntsman in an all-cash transaction valued at approximately $10.6 billion. Huntsman shareholders approved the deal in October 2007.

In June, Hexion claimed the combined company would be insolvent and said Huntsman's increased net debt and its lower-than-expected earnings were to blame.

The Delaware Court of Chancery in September ruled in favor of Huntsman and ordered Hexion to close the deal.

The Court of Appeals for the Ninth District of Texas awarded a temporary injunction in favor of Huntsman earlier in October, enjoining affiliates of Credit Suisse and Deutsche Bank from filing any lawsuit that alleges that the combined company would be insolvent or would be incapable of paying off its notes to the banks.

Huntsman's claims against the banks were consolidated with the company's previously filed claims against Apollo Management, Leon Black and Joshua Harris.

A jury trial is set to begin on Feb. 9. Huntsman is seeking more than $3 billion in actual damages, plus exemplary damages, attorneys' fees and interest, Huntsman said previously.

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

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