Apollo Global Management portfolio company Hexion Specialty Chemicals has sued Deutsche Bank and Credit Suisse to force the banks to finance its $6.5 billion merger with chemical manufacturer Huntsman.
The deal was supposed to close on Tuesday, but the banks declined to move forward, arguing that a solvency opinion obtained by Huntsman did not meet the conditions of the deal.
Hexion said in a statement Wednesday that the banks breached their obligations under an agreement struck in July 2007 to fund the closing of the merger. The company filed the suit in the Supreme Court of New York.
“Both Hexion and Huntsman are ready, willing and able to complete the merger immediately, but have been prevented from doing so by the banks’ breach,” Craig Morrison, chairman and chief executive of Hexion, said in a statement. “We are seeking judicial relief to compel the banks to fund the merger as required by their commitment letter.”
Credit Suisse and Deutsche Bank are currently subject to a restraining order preventing them from filing any lawsuit “that directly or indirectly alleges that the combination of Hexion and Huntsman would be insolvent or would be in any way incapable of performing its obligations to pay off the notes”.
Apollo had attempted to terminate the merger in June, arguing that Huntsman had suffered a material adverse change in its business following the merger agreement , and the company was under no obligation to complete the transaction or pay a break-up fee.
Apollo said at the time that the combined company would be insolvent as a result of the debt load built into the deal, and that financing would not be available.
A Delaware Chancery Court judge rejected Apollo’s argument and ordered the company to make best efforts to move forward with the transaction.
The terms of the merger call for a price of $28 per share, plus ticking fees in the event of a delay, bringing the per share price to $29.31. Huntsman stockholders have agreed to make additional cash payments of $217 million to the company upon the closing of the transaction, bringing the total equity backstop to $677 million.
Apollo will contribute an additional cash payment of $210 million to Hexion upon close in addition to the $540 million the firm committed earlier this month. Apollo also previously waived its contractual right to a transaction fee from the merger and agreed to suspend its monitoring fees from Hexion for three years in an effort to close the deal.