Huntsman could sue Hexion, renegotiate - Wall St

19 June 2008 17:15  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Huntsman could renegotiate its merger agreement with Hexion Specialty Chemicals for a lower price or sue for breakup fees and damages, Wall Street analysts said on Thursday.

“Hexion believes the merger would create an insolvent entity, which could potentially free Hexion from paying the $325mm [€208m] breakup fee,” said Citigroup analyst PJ Juvekar.

 “[But] we recently spoke with Huntsman management, and they indicated that Hexion could not walk away from the deal without paying the breakup fee and damages.”

The damages would be calculated as the difference between the $28/share agreed-upon acquisition price and the price following the breakup, multiplied by the number of shares, noted Juvekar.

Shares of Huntsman plunged by $8.49, or 41%, at the opening of trading on Thursday to $13.27. With 233.8m shares of Huntsman outstanding at the end of the first quarter, damages could amount to $3.5bn.

To avoid litigation, a renegotiated deal could take place, said Jefferies & Co analyst Laurence Alexander.

“In the absence of a new suitor, we assign a 25% probability that Hexion agrees to a revised take-out agreement in the high-teens to avoid prolonged litigation,” he said.

The timing of the merger agreement, which was signed on July 12, 2007, led Hexion to pay a high price for Huntsman, said Citigroup’s Juvekar, explaining how EBITDA multiples had changed.

“Hexion [would be] paying 13.25x our estimated 2008 EBITDA [earnings before interest, tax, depreciation and amortisation] of $800m, a significant increase since July 2007 when the implied value was 9.1x our estimated 2008 EBITDA of $1.17bn.

($1 = €0.64)

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