19 June 2008 15:16 [Source: ICIS news]
TORONTO (ICIS news)--Hexion’s attempt to back out of its $10.6bn (€6.8bn) merger deal with Huntsman is not surprising given that it was struck at the peak of the chemical buyout boom and markets have worsened significantly since then, analysts at HSBC said on Thursday.
Hexion and private equity firm Apollo on Wednesday filed a lawsuit in which they called their July 2007 merger agreement with Huntsman untenable in light of the impact of raw material prices on the company’s profitability and the difficulty in financing the deal.
“We have always maintained that the Huntsman deal, struck at the peak of the buyout boom did not make economic sense for the buyer, given the company’s high leverage and quasi specialty portfolio,” said Hassan Ahmed, chemical analyst for the London-based international bank.
The financials of the deal started to look even less appealing over the last few quarters as raw material prices escalated, placing pressure on Huntsman’s margins, he said.
Based on Huntsman’s fundamentals the stock should trade no higher than $15/share, compared with the $28/share the merger deal implied, he added.
Huntman's share price dropped 40.5%, to $12.40/share in early morning trading in New York, down from Wednesday's closing price of $20.86.
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