Citadel, D.E. Shaw offer to back Hexion, Huntsman merger

By Lisa Kerner

Charlotte, N.C., Aug. 28 - Huntsman Corp. shareholders Citadel Investment Group, LLC and D.E. Shaw & Co., LP told Hexion Specialty Chemicals, Inc. and Apollo Global Management, LLC they are prepared to finance at least $500 million of the consideration due under the Hexion/Huntsman merger agreement.

The financing would be in the form of a subscription for contingent value rights.

According to Citadel and D.E. Shaw, the financing enhances Hexion's rate of return and facilitates a "mutually beneficial resolution of the current disagreement" between the two companies.

Citadel said Hexion can use the financing provided in exchange for the contingent value rights to supplement debt financing for the merger consideration as well as for post-merger liquidity.

A copy of the investors' Aug. 28 letter to Hexion and a draft commitment letter were included in a schedule 13D filed with the Securities and Exchange Commission.

The investors are prepared to enter into a commitment letter immediately, the filing said.

Citadel and D.E. Shaw said their own commitments of $245.02 million are subject to Hexion's receipt of similar commitments from a limited number of other large investors in Huntsman so that the total amount of all contingent value rights commitments is at least $500 million.

The Huntsman Family Stockholders are expected to commit to subscribe for a total $186.23 million in notional amount of contingent value rights.

Hexion was asked to accept the commitment letter by Sept. 15.

The investors' commitments are contingent of the consummation of the merger of Hexion and Huntsman under the terms of their merger agreement.

In response, Hexion said the proposal still does not go far enough.

"While we appreciate the efforts of these shareholders, due to the dramatic increase in Huntsman's net debt and decrease in its earnings since last July, their proposal does not come close to making the combined company solvent," Hexion said in a statement.

"Huntsman's shareholders lack this information because Huntsman has, despite our repeated requests for more than two months, refused to permit its shareholders to review our Delaware complaint and the Duff & Phelps solvency analysis. If this information were made public, Huntsman shareholders would understand that this proposal is inadequate. Furthermore, the proposal is for incremental, not alternative debt financing, as specified under the merger agreement.

"We are not seeking to renegotiate this transaction. We are seeking to terminate it, and obtain judicial confirmation that Hexion has no obligation to pursue the acquisition or to pay Huntsman a termination fee."

Earlier in the month, Citadel said it would monitor a variety of investment considerations and the company's operations in light of Huntsman's public dispute with Hexion after litigation related to the dispute began in several jurisdictions.

On July 12, 2007, Hexion agreed to acquire Huntsman for $10.6 billion. Huntsman shareholders approved the deal in October 2007.

However, 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 also declined to extend the merger agreement, it was reported 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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