Huntsman Pushes For Hexion Deal

HUNTSMAN CORP. shareholders have made a last-ditch effort to salvage Hexion Specialty Chemical's $10.6 billion purchase of their company, but Hexion is calling the financing offer "inadequate."

Major Huntsman shareholders, including MatlinPatterson Global Advisors, Citadel Investment Group, the hedge funds led by D. E. Shaw, and the Huntsman family, sent a letter to Hexion on Aug. 28 offering more than $500 million to help finance the transaction.

The offer comes with "contingent value rights," which means that the additional funds have to be paid back only if Hexion earns a 20% annual rate of return on capital after the deal. The shareholders stand to see their Huntsman stock increase from about $13.00 per share today to Hexion's agreed price of $28.00 per share should the deal be completed.

"From our perspective as equity investors, we believe the main issue at hand is your expected rate of return to Hexion stockholders after giving effect to the merger," the parties write in their letter. Huntsman said in a statement it is "gratified by the confidence in the merged company expressed in this shareholder initiative."

In its own statement Hexion says the offer doesn't go far enough in addressing its reasons for wanting to back out. "We are not seeking to renegotiate this transaction," the firm says. "We are seeking to terminate it."

Hexion has been looking to part ways with Huntsman since it filed a suit in a Delaware court in June seeking to scuttle the deal (C&EN, June 23, page 8). In court filings and letters by Hexion CEO Craig O. Morrison to Huntsman Corp. CEO Peter R. Huntsman, the company has been arguing that the combined company would be insolvent and that its current financing is insufficient to close the transaction.

Hexion has maintained that alternative financing is needed to proceed because of poor performance in Huntsman's titanium dioxide, textile chemicals, and performance chemicals businesses since the merger agreement was signed in July 2007. The resulting increase in debt, the firm says, created a gap between what the banks have offered and the financing the merger would need.

Huntsman has suggested additional financing to supplement already-committed bank loans. Hexion rebuts that such an arrangement is not called for in the merger agreement. The trial is set to begin later this week.