Lyondell entities agree to dismiss transfer claims tied to 2007 merger

By Caroline Salls

Pittsburgh, Nov. 28 - Two entities created by Lyondell Chemical Co.'s bankruptcy plan have agreed to dismiss their claims for constructive fraudulent transfer made in lawsuits filed to recover proceeds received by shareholders in a December 2007 merger, according to a prospectus supplement filed with the Securities and Exchange Commission.

LB Creditor Trust trustee Edward S. Weisfelner filed the first lawsuit against Morgan Stanley & Co., Inc. The defendants in the case have asked the U.S. Bankruptcy Court for the Southern District of New York to dismiss the lawsuit. That motion is pending.

Weisfelner filed the second lawsuit against A Holmes & H Holmes TTEE. A motion for dismissal of that case is also pending.

According to the prospectus supplement, the court denied a challenge to the plaintiff's standing to prosecute claims in the Holmes case in October, authorized discovery on the claims prosecution issue and confirmed the dismissal of the constructive fraudulent transfer claim.

In addition, the court said other grounds for seeking dismissal were still under consideration.

Both suits attempt to recover the proceeds paid out to holders of Lyondell's shares at the time of the merger.

Specifically, under the Morgan Stanley lawsuit, the trustee asked the court to set aside and recover $5.9 billion as fraudulent transfers paid to shareholders in the merger and was looking to recover "substantially in excess of $6 billion" in the Holmes lawsuit.

A total of $12.5 billion was paid to shareholders under the merger, according to the complaints filed with the court.

The trustee said the payments made to the shareholders were fraudulent because LyondellBasell received nothing in return from the shareholder defendants and because they rendered LyondellBasell insolvent, according to court documents.

"The $48 per share price paid to Lyondell shareholders pursuant to the merger was a blowout price that resulted in a windfall to Lyondell shareholders and management," Weisfelner said in the lawsuits.

The trustee said in the Holmes complaint that "every dollar that went to shareholders and every dollar used to pay the approximately $1 billion in transaction fees charged by affiliates, advisors, and professionals in connection with the transaction, was funded with debt leveraged against the assets of Lyondell and its operating subsidiaries."

As a direct result of the merger, Weisfelner said Lyondell and many of its direct and indirect subsidiaries were forced to file for bankruptcy.

Lyondell Chemical is a U.S. subsidiary of LyondellBasell Industries AF SCA, a Netherlands-based polymer, petrochemicals and fuels company. LyondellBasell's U.S. operations and one of its European holding companies filed for bankruptcy on Jan. 6, 2009.

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