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DOVER, Del. (AP) -- A Delaware judge has refused to allow Hexion Specialty Chemicals to walk away from a $6.5 billion buyout of chemicals maker Huntsman Corp.
In a ruling late Monday, Vice Chancellor Stephen Lamb ordered Hexion, an affiliate of private equity firm Apollo Management LP, to use its best efforts to complete the deal and said he would extend the termination date if necessary.
Lamb also denied Hexion's claim that Huntsman was not entitled to a $325 million break up fee if the deal does not go through.
Hexion had argued in its lawsuit that Huntsman's finances began deteriorating shortly after the 2007 takeover agreement, and that the deal was no longer viable because the combined company would be insolvent. It sought to free itself from the deal, as well as the breakup fee.
Huntsman shares rose $5.22, or 71 percent, to $12.55 in morning trading Tuesday.
In a 91-page ruling, Lamb found that while Salt Lake City-based Huntsman, which has its administrative headquarters in The Woodlands, Texas, reported several disappointing quarterly results after the agreement, it had not suffered a material adverse effect that would excuse the parties from executing the agreement. He also found that Columbus, Ohio-based Hexion "knowingly and intentionally" violated several of its covenants under the agreement.
Lamb noted that Hexion was so eager to buy Huntsman in July 2007 that it agreed to pay a substantially higher price than other bidders, and that it also agreed that the unavailability of financing at closing would not excuse Hexion from performing under the contract. "Thus, the court will grant the seller's request for an order specifically enforcing the buyer's contractual obligations to the extent permitted by the merger agreement itself," the judge wrote.
Lamb withheld judgment on whether the combined entity would be solvent or insolvent at closing, saying that issue should be considered only if all the other conditions to closing are met, at which time Hexion would be obligated to call upon its lenders and a solvency letter or opinion would be delivered to the lending banks.
But the judge rejected Hexion's claim that it should be freed from its obligations simply because its board of directors concluded that the transaction carried a risk of insolvency.
"The court recognizes that there remain substantial obstacles to closing the transaction," Lamb wrote. "Some of those result from the current unsettled credit environment, others result from the difficult macroeconomic conditions facing both the seller and the buyer in running their businesses.
While Huntsman can not force Hexion to consummate the merger, it is entitled to a judgment ordering Hexion to fulfill its other obligations under the merger agreement, Lamb concluded.
Huntsman president and chief executive Peter Huntsman said in a prepared statement that his company was gratified by the court ruling, and that "Apollo's misguided attempt to use 2008's turbulent energy and financial markets to construct a solvency issue where none existed has now been exposed." Jon Huntsman, founder and chairman of the company, said Apollo had been "dishonest and untruthful."
Hexion issued a statement saying it was disappointed by the ruling. "We are reviewing the decision and our options," the company said.
(Copyright 2008 by The Associated Press. All Rights Reserved.)
