Hexion Specialty Chemicals (Columbus, Ohio / USA; www.hexion.com) has filed a lawsuit against US chemicals producer Huntsman (Salt Lake City, Utah / USA; www.huntsman.com) saying that their planned USD 10.6 bn (EUR 6.8 bn) merger – see Plasteurope.com of 13.07.2007 – would produce an insolvent company, despite both companies individually being solvent. In the lawsuit, which effectively brings to an end the planned merger, Hexion says that the deal is no longer viable because of Huntsman’s increased net debt and lower than expected earnings since the merger was agreed. The capital structure of the proposed business would render the company insolvent, it said.

Huntsman rejected the claims by Hexion and private equity investor Apollo (New York, New York / USA; www.apolloic.com), which owns the Ohio-based speciality chemicals producer. In a statement, president and CEO Peter Huntsman said: “We believe Hexion and Apollo’s actions are inconsistent with the terms of the merger agreement and the obligations to Huntsman and its shareholders. These actions appear to be a blatant attempt to deprive our shareholders of the benefits of the merger agreement that was agreed to nearly a year ago.” The company said that it “intends to vigorously enforce all of its rights under the merger agreement and seek to consummate the merger on the agreed terms.”

Hexion says that it does not believe that the banks will provide the debt financing that they have committed to. The company states in the legal filing that it had received an opinion from independent financial and banking adviser Duff & Phelps (New York, New York / USA; www.duffandphelps.com) concluding that on the basis of the capital structure agreed at the time of the merger agreement, the combined company would not meet standard capital and solvency tests. It added that while it will continue to use its “reasonable best efforts” to close the transaction, which still requires antitrust and regulatory approval, it does not believe that alternative financing will be available.