Judge holds Hexion to Huntsman buyout proposal

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 $5.25, or 71.4 percent, to end at $12.60 Tuesday. In its buyout proposal, Hexion offered $28 per share.

In a 91-page ruling, Lamb found that while Salt Lake City-based Huntsman 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.