The banks at the heart of the Hunstman deal are backtracking on their commitment to fund the merger. Acquirer Hexion is suing those banks to force them to fund the deal. There are some big financial penalties for Hexion if they cannot complete the deal, so they have some serious motivation to sue those banks.

The banks say the combined companies will not be solvent and thus should not be required to fund the deal. In rebuttal, Huntsman has obtained an opinion from American Appraisal that the merged companies will in fact be solvent:

American Appraisal found that the combined Hexion-Huntsman company would satisfy all of the solvency tests commonly used in transactions of this nature.

Conclusion:

Some comments from around the web feel the banks do not have a sound footing for not funding the deal. The Hexion lawsuit would sort of reaffirm this. However, I still feel that all parties will end up settling and the deal price will be somewhat lower than the original $28/sh. I am thinking $20/sh will happen. I still have an M&A Status of Buy for this one.

I previously wrote about this deal here.

Sources:

Reuters article on the lawsuit by Hexion

YourPetrochemicalNews.com article about the solvency opinion

Nice recap on the Hexion lawsuit at NYT