Huntsman Corp.'s finance chief told a judge that the company produced by a merger with Hexion Specialty Chemicals Inc. would have more assets than liabilities and wouldn't face insolvency.
Salt Lake-based Huntsman, which is seeking to force Hexion and Apollo Management LP to complete their $6.5 billion buyout, can weather a decline in the chemical markets while ramping up production at the firm produced by the combination, J. Kimo Esplin, Huntsman's chief financial officer, testified today in the last day of a Delaware Chancery Court trial.
"I believe the company, and the combined companies, are solvent," based on an analysis of projected earnings, cost-improvements and reduced expenses, Esplin said. Hexion and Apollo officials contend they can cancel their offer because the new firm would be insolvent.
David Resnick, co-head of investment banking for Rothschild North America Inc., testifying for Huntsman, said the Duff & Phelp's insolvency opinion obtained by Hexion is flawed. He said the calculations used to determine that the combined company's liabilities would exceed its assets "were unreliable."
Hexion witness Richard Jones of Punter Southall & Co., who evaluates pension liabilities in mergers, testified that Huntsman may have to contribute more than $500 million to satisfy U.K. regulators that its British companies' pension pool is adequately funded.
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 Apollo. Hexion, based in Columbus, Ohio, is the top producer of adhesives used in plywood. Huntsman is the world's biggest maker of epoxy adhesives.
Hexion and Apollo officials contend a decline 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. The company said last week it had hired a valuation firm to provide a formal opinion on the combined company's solvency.
Recent weather may affect the business. While Huntsman's five South Texas facilities weren't significantly damaged when Hurricane Ike blew through last weekend, the plants aren't operating because the areas lack power, executives said in a release.
Huntsman's performance has suffered in 2008, Esplin acknowledged in testimony before Delaware Chancery Court Judge Stephen Lamb. It has been an "incredibly difficult year" for Huntsman, with rising costs of raw materials, unfavorable foreign-exchange rates and a weak economy, Esplin said.
Huntsman has responded by cutting costs and laying off about 1,000 workers, he said. The company is projecting about $550 million in savings in 2009.
The company can handle its problems with cash to spare to fund operations of the firm produced by the merger, Esplin said. "This happens all the time in this industry," he said. "We have cyclical downturns and pop right back."
Lamb has indicated he'll try to deliver an opinion by Oct. 2, the proposed merger-closing date. He gave lawyers at least a week to submit some post-trial briefings.
Huntsman fell 47 cents, or 3.9 percent, to $11.45 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 55 percent this year.