Hexion Says Huntsman Hid Poor Performance

The fate of Huntsman Corp. is in the hands of Delaware's Court of Chancery. A trial commenced there last week to decide whether Hexion Specialty Chemicals can back out of its $10.6 billion purchase of Huntsman. Since June, Hexion has been looking for a way out of the deal because, it says, "material adverse effects" in the form of a deterioration of Huntsman's performance would render the combined company insolvent. In a brief filed just before the trial, Hexion lawyers allege that Huntsman executives had been covering up poor performance since the merger agreement was signed in July 2007. The document says earnings estimates Huntsman presented to Hexion were so consistently off the mark that executives "had lost confidence in Huntsman management's ability to forecast its own business and, indeed, about the credibility of senior corporate management." Hexion adds that even Huntsman's financial adviser, Merrill Lynch, was concerned with the viability of the combined company, with one banker disclosing in an internal e-mail that "we look insolvent." Huntsman attorneys counter that the insolvency opinion of the financial advisory firm Duff & Phelps, on which Hexion has based its bid to break from Huntsman, was "contrived" to help Hexion back out of the deal merely because of lackluster profitability and investment returns.