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Huntsman Trial Begins

Chemical maker and two banks tussle over failed merger

by Alexander H. Tullo
June 22, 2009 | A version of this story appeared in Volume 87, Issue 25

Credit: Alex Tullo/C&EN
Credit: Alex Tullo/C&EN

A Texas jury began to hear testimony last week in Huntsman Corp.'s $4.65 billion suit against the two banks, Credit Suisse and Deutsche Bank, that backed out of providing $15 billion in financing for Huntsman's acquisition by Hexion Specialty Chemicals last year.

In the suit, Huntsman claims that the banks induced it to walk away from a merger with Basell in 2007 by providing what seemed to be solid financing for a more lucrative deal with Hexion. Without that commitment, Huntsman asserts, it would have stuck with Basell.

In their opening statements, Huntsman lawyers said the banks became increasingly worried about syndicating (selling to third parties) their prospective loans. Huntsman said the banks pressured Hexion and Apollo Management, Hexion's owner, into trying to back out of the merger, which it attempted by suing in Delaware. Hexion lost that case and settled for $1 billion.

Finally, the lawyers said the banks were obliged to provide funding because solvency certificates provided by Huntsman's chief financial officer and the independent valuation firm American Appraisal more than met the terms of the banks' commitment.

"What good would it do to receive a solvency certificate from the chief financial officer at Huntsman or from a reputable third party or from Hexion—one of those three—if at the end of the day the banks simply can wave their hand and say, 'We've done our own study, we're not going to accept it?' " Huntsman CEO Peter R. Huntsman testified.

The banks had the right to determine whether the solvency certificate was satisfactory, said Richard W. Clary, an attorney for the banks. He likened it to a termite certificate. "You're the bank that's supposed to lend the money on a house purchase and while you're doing the walk-through, you can see the termite damage and the buyer who's going to borrow the money says, 'You know, this place is full of termites,' and then the seller comes up and says, 'Here's your termite certificate' at closing," he told the jury.

Joel I. Greenberg, a partner with the New York City law firm Kaye Scholer who is following the case, says the banks will likely defend the case vigorously. "I don't see how they can make a big settlement because they would be setting themselves up for a similar claim every time a deal fails," he says.



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