NEW YORK/WILMINGTON (Reuters) – Chemicals maker Huntsman Corp (HUN.N) and Apollo Management took their battle to court on Monday in a case to decide whether the private equity firm must honor its offer to buy Huntsman.
Apollo and its subsidiary Hexion Specialty Chemicals Inc are trying to back out of their planned $6.5 billion acquisition of Huntsman, which was announced at the height of the private equity boom in July 2007.
The deal has been in jeopardy since Apollo and Hexion filed suit against Huntsman in June, seeking to limit their liability in the event that the deal fell apart. Huntsman countersued to force the deal to go through.
To salvage the deal, a group of investors in Huntsman offered to provide additional funding, but Hexion said on Monday the proposed funding did not come close to closing the funding gap or making the combined company solvent.
“We’re at a point where we don’t believe you can feasibly close this deal,” Hexion Chief Executive Craig Morrison told the court from the witness stand in the first day of the trial in Delaware Court of Chancery in Wilmington.
Apollo and Hexion said the deal is no longer viable because of Huntsman’s increased net debt and cited an opinion from financial advisory firm Duff & Phelps that the combined company would be insolvent if the deal proceeded under the agreed terms.
Credit Suisse and Deutsche Bank, which originally agreed to fund the deal, have so far refused to comment on the dispute. However, latest court documents indicate that the banks too are having second thoughts about the deal.
In documents submitted to the court, Apollo and Hexion said a Credit Suisse analysis conducted in July indicated that a combination of Huntsman and Hexion would be insolvent under three different tests.
In its pre-trial documents, Huntsman contended that the banks had no concerns about the deal prior to the Duff & Phelps opinion and added that the banks were fully prepared to fund their commitments at the time.
Earlier in the day, Morrison said Hexion’s management had a strong incentive to complete the Huntsman acquisition because of the prospect of operating the world’s biggest specialty chemicals company, and because of $35 million in payments that would be made to the management team when the deal was signed.
He rejected a suggestion from Hexion attorney Marc Wolinsky that he was trying to “low-ball” Huntsman’s financial projections in order to end the transaction.
“We had no incentive just to come up with a low number just to get out of this deal,” he said.
By Euan Rocha and Jon Hurdle
(Editing by Steve Orlofsky)