Hexion Specialty Chemicals Inc. said Thursday that it received a capital contribution of $540 million from its parent company Apollo Management L.P. that it will help it in completing the takeover of chemical manufacturer Huntsman Corp. (HUN). Hexion had tried to walk away from the $6.5 billion deal for the takeover of Huntsman agreed to last year, citing Huntsman's rising debts and disappointing financial performance. However, the Delaware Court of Chancery ordered Hexion last month to take all steps required to complete the merger.
The Columbus, Ohio-based Hexion said it was proceeding expeditiously to close its merger with Huntsman Corp. The company noted that the new capital contribution from Apollo, which is not required by any current contractual obligation of either Hexion or Apollo, would help it in addressing the issues raised in the decision by the Delaware Chancery Court in the pending merger.
Apollo Management informed Hexion that it will waive its contractual right to a transaction fee in connection with the merger and suspend for three years its ongoing monitoring fees from Hexion. Apollo's equity commitment and fee waivers are conditioned upon consummation of the merger.
Hexion said that it has taken several significant steps towards completion of the Huntsman merger after the court decision was issued last Monday. The company noted that both the European Union and the U.S. Federal Trade Commission have completed their reviews of the transaction. Hexion added that it is in ongoing discussions with huntsman on a wide range of matters relating to the closing.
The Huntsman-Hexion merger deal had come through in July 2007, when Huntsman agreed to be acquired by Hexion for a sweetened price of $28 per share in cash, up from the prior offer of $27.25 per share. The deal was cleared only after Dutch manufacturer Basell AF, which was also in the fray to buy Huntsman, did not raise its bid before the deadline. In May 2008, Huntsman reported a sharp decline in net earnings for the first quarter, hurt by increased costs.
In June, Hexion filed a suit in a Delaware Court to declare its contractual rights with respect to the merger agreement. Hexion indicated that the capital structure agreed with Huntsman was no longer viable and attributed the move to Huntsman's rising debts and disappointing financial performance.
The Salt Lake City, Utah-based Huntsman then filed a counter suit against Apollo and its partners Leon Black and Joshua Harris in Conroe, Texas, for fraud and tortious interference in connection with inducing Huntsman to terminate the merger deal with Basell AF and enter into a merger agreement with Apollo affiliate Hexion Specialty Chemicals instead. The company sought at least $3 billion in damages if Hexion does not complete the deal.
Earlier this week, Huntsman said that the Delaware Court of Chancery decided to enter a judgment in favor of the company, denying all declarations sought by Apollo Management, L.P. and Hexion Specialty Chemicals, Inc. in their suit requesting the court to excuse Hexion from its obligation to consummate a pending merger transaction with Huntsman.
Apollo and Hexion had alleged that Huntsman was not entitled to a $325 million break up fee and had suffered a material adverse effect since signing the merger agreement. The companies also said that a solvency certificate or opinion could not be provided for the combined Hexion/Huntsman entity at the closing. Both allegations were soundly rejected by the Chancery Court.
The court ordered Hexion to specifically perform its covenants under the merger deal, including the obligation to take all actions necessary to consummate the merger in the most expeditious manner practicable. The court further ordered that if the merger closing has not occurred by October 1, the merger agreement termination date shall be extended until the court determines that Hexion has fully complied with its order.
In addition to denying the relief sought by Apollo and Hexion, the court found that Hexion had breached a number of obligations and covenants under the deal, and such breaches were intentional and directed by Apollo.
HUN closed Thursday's regular trading session at $11.64, up $2.56 or 28.19%.
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