A hex on this deal

October 28, 2008

When at first you don’t succeed to fail, just wait for the banks. After Huntsman took rival Hexion Specialty Chemicals to court to force them to make good on their $6.5 billion acquisition, it’s the banks that are now trying to shut the door.
Hexion and its parent Apollo Management went to court to kill the deal in June, arguing that the combined company would be insolvent. Huntsman countersued, but the insolvency argument has caught hold at Credit Suisse and Deutsche, the banks behind the deal. Insolvency, it turns out, is not a good business for banks, ranking somewhere below reckless real estate lending and buying complex credit derivatives on the advice of rating agencies. Banks, facing big losses on the deal, figured it was better to pay the lawyers. The banks had agreed to accept a solvency opinion from either party or an independent body. That’s what they got, but they are still balking.
This morning, Hexion said it strongly disagreed with the banks decision. Given they were ordered by the Delaware court to do everything they could to make the deal happen, they were bound to be outraged by their banks failure to commit. Secretly satisfied, perhaps, but publically unhappy nonetheless. 
Still out there is Huntsman’s countersuit, which alleges that Hexion scared off another bidder, and the Delaware court never specifically ruled on what the banks had to do to make the deal happen. And the two sides seem to be talking so there is reason to expect this thing to tick on yet for a while. Stepping back a bit, a $700 billion bailout package is being doled out to try to get banks back to the business of lending. Whether or not they will have to prove the solvency of the businesses to lend to is naturally a matter for… the courts?

Deals of the day:

* British gas producer BG Group launched a A$5.6 billion ($3.4 billion) friendly takeover bid for Australia’s Queensland Gas, its latest effort to boost its position in Asia’s fast-growing natural gas market.

* Victoria Oil & Gas said it paid about $400,000 for an option to buy Cypriot oil explorer Falcon Petroleum, which has substantial exploration prospects in Ethiopia and Mali.

* Intel Capital, the investment arm of Intel Corp, announced three investments in Chinese companies, including its first moves into the nation’s clean technology sector.

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