Huntsman solvency reviewed

Huntsman Corp., the chemical maker seeking to force completion of a buyout by Hexion Specialty Chemicals Inc., never received an official report from advisers showing the combined company would be insolvent, a banker testified Wednesday.

Merrill Lynch & Co. bankers reviewed whether the new company would face solvency problems, Patrick Ramsey, the Merrill executive who led Huntsman's advisory team, testified in Delaware Chancery Court. The New York-based firm didn't formally conclude the combined company would be insolvent, he said.

"I never made a representation that Merrill Lynch would deliver a formal solvency opinion," Ramsey said at the trial of Hexion's lawsuit seeking to cancel the buyout. "It's not something we do in our business practice."

Hexion is a unit of Apollo Management LP. The combined company would be one of the world's largest specialty-chemical makers, with annual sales exceeding $14 billion, 21,000 employees and 180 facilities, according to New York-based Apollo. Hexion, based in Columbus, Ohio, is the top producer of adhesives used in plywood, and Salt Lake City-based Huntsman is the world's biggest maker of epoxy adhesives.

Hexion and Apollo officials contend a downturn in the chemical industry and operational problems within Huntsman gave them the right to renege on the buyout. Huntsman is seeking at least $3 billion in damages if the deal isn't completed.

In pre-trial court filings, Hexion officials cited e-mails from members of Merrill's advisory team, which said the combined company failed some insolvency tests, to show that Huntsman executives knew the buyout was on shaky ground.

Ramsey on Tuesday acknowledged that some Merrill bankers questioned the solvency of the combined company. Still, the team's final analysis found no insolvency problem.

"I made a number of changes to this report and I came out of that review not having the view that the combined business would be insolvent," he told Judge Stephen Lamb.

Ramsey said Merrill bankers started looking at solvency issues in May as a tightening of credit markets made lenders leery about funding agreements that were reached earlier. Merrill would get a $25 million fee out of the deal, he said.

Hexion and Apollo officials gave no indication they were thinking about canceling the deal until they sued in Delaware, Ramsey said.