Hexion, Apollo, and Wachtell then considered whether an insolvency argument could be used to try to exit the agreement, although VC Lamb noted that “Hexion had no right to terminate the agreement based on potential insolvency of the combined company or due to lack of financing.”ĭespite this, Lamb observes, “it appears that … Apollo and its counsel began to follow a carefully designed plan to obtain an insolvency opinion, publish that opinion (which it knew, or reasonably should have known, would frustrate the financing), and claim Hexion did not “knowingly and intentionally” breach its contractual obligations to close (due to the impossibility of obtaining financing without a solvency certificate).” Indeed, on behalf of Hexion/Apollo, Wachtell Lipton engaged a valuation firm in May 2008, who issued an insolvency letter, which Hexion then used to file a lawsuit in Delaware seeking to exit the merger agreement. According to Vice Chancellor Lamb’s opinion from Monday, Hexion, Apollo, and Wachtell Lipton (their counsel) considered whether a “material adverse change” argument was available, ultimately concluding that such an argument was very weak. Hexion therefore began looking for ways to exit this merger agreement. The credit markets tightened in August 2007, the stock market softened, and Huntsman had a disappointing first quarter of 2008. Like many buyers who signed merger agreements in the spring and summer of 2007 to buy targets under highly-financed conditions, Hexion quickly had buyer’s remorse. In response, to offer Hexion certainty, Huntsman agreed to a very pro-target agreement, and the deal between Huntsman and Hexion was signed on July 12, 2007. Basell had offered slightly less money for Huntsman, maintaining that its offer was still better than Hexion’s because the Hexion offer was fully financed and therefore not certain to close. The agreement was so favorable for the target because Hexion was in a bidding war with Basell to acquire Huntsman when the agreement was signed. The merger agreement in this deal was tight, with a narrowly drawn material adverse change escape for Hexion, with a provision obligating Hexion to exercise its reasonable best efforts to finance the deal, with an antitrust hell-or-high water provision obligating Hexion to do almost anything required by the FTC/DOJ to close the deal, and with a clause specifying that Huntsman can sue Hexion for economic damages for “a knowing and intentional breach” of any of the covenants in the merger agreement (as opposed to a liquidated damages provision). (Huntsman is now trading at around $12 per share.) The deal was to be financed by Credit Suisse and Deutsche Bank, both of whom proffered commitment letters when the deal was signed and vouched to finance provided Huntsman could offer a “customary and reasonably satisfactory” solvency certificate prior to closing the financing. In July of 2007, just before the credit markets imploded, Hexion, which is 92% privately owned by Apollo private-equity entities backed by Leon Black and Joshua Harris, entered into a merger agreement to acquire Huntsman Corporation for $28 per share in cash. The opinion is well worth reading for deal lawyers – it offers a good tutorial on how private equity deals can fall apart, how merger agreements can impact the unraveling of a deal, how Wachtell Lipton lawyers lawyer, and how much tom-foolery Vice Chancellor Lamb will tolerate before getting disgusted. Huntsman battle, ordering Hexion to perform its obligations under its 2007 agreement to acquire Huntsman. ![]() ![]() On Monday night, Delaware Vice Chancellor Lamb issued an opinion in the epic Hexion v.
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