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Hexion, Huntsman Merger May Not Happen

Specialty chemicals maker said it no longer thinks that it will be able to acquire Huntsman Corp. because of the deterioration of Hntsman's finances.

SALT LAKE CITY (AP) -- Hexion Specialty Chemicals Inc. said Wednesday it no longer thinks that it will be able to acquire fellow chemicals maker Huntsman Corp. because of the deterioration of Huntsman's finances. Huntsman shares fell nearly 38 percent.

Columbus, Ohio-based Hexion, which is controlled by an affiliate of Apollo Management LP, said it filed a lawsuit in the Delaware Court of Chancery to declare its contractual rights with respect to its $6.5 billion offer for the company, which is based in Salt Lake City but has its administrative headquarters in The Woodlands, Texas.

Hexion said in a statement that it believes the agreed capital structure for the combined company is no longer viable because of Huntsman's increased debt and its lower-than-expected profits.

The lawsuit alleges that Huntsman has suffered a ''material adverse effect'' that would allow Hexion to back out of its merger agreement. Hexion said going forward with the acquisition with that capital structure would render the combined company insolvent.

Huntsman executives didn't return calls Wednesday from The Associated Press.

Hexion had received financing commitments for the deal from Deutsche Bank AG and Credit Suisse Group AG. But Hexion said in its lawsuit that it does not believe that banks will provide the financing, and it does not believe alternate financing will be available.

''We continue to have enormous respect for Huntsman, the Huntsman family and management team and still believe that a combination of the two companies would offer significant strategic benefits,'' Hexion Chairman and CEO Craig O. Morrison said in a statement. ''However, the financing for the acquisition is predicated on a certain level of financial performance and, given the increase in Huntsman's total debt and decrease in earnings, Hexion does not believe that the transaction can be completed.''

Huntsman's first-quarter profit tumbled 84 percent as the weaker dollar and costlier raw materials and feedstocks ate away at higher revenues. Earnings for the three months ended March 31 were $7.3 million, down from $46.6 million in the first quarter of 2007.

In late May, the company announced big price hikes and an energy surcharge to cover rising costs. Huntsman sells epoxy resins, polyurethanes and other specialty chemicals.

Huntsman announced in July 2007 that Hexion had offered about $6 billion, or $27.25 per share, for the company, an 8 percent premium over a $5.6 billion, $25.25 per share bid from Dutch manufacturer Basell AF.

A week later, Hexion raised its offer to $28 per share, or about $6.5 billion, and Basell declined to raise its offer. Under the deal, Hexion also planned to assume $4.1 billion in debt.

Huntsman shares closing Wednesday at $20.86, but following Hexion's announcement, they fell $7.86 to $13 in after-hours trading.

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