The parties, both large chemical corporations, had entered into a merger agreement by which Hexion Specialty Chemicals (“Hexion”) would acquire Huntsman Corp. (“Huntsman”) in a leveraged cash transaction. After the financial condition of Hunstman worsened, Hexion claimed that a Material Adverse Effect (“MAE”) afflicting Huntsman excused it from performance. The Court rejected this argument, holding that (a) historical changes in Huntsman’s financial condition (focusing on EBITDA and net debt) were not significant enough to materially impair Huntsman, and (b) the merger agreement explicitly disclaimed any representation or warranty by Hunstman with regard to forecasts, allocating such risk to Hexion. In addition, the Court held that Hexion knowingly and intentionally breached a covenant in the merger agreement to use reasonable best efforts to consummate the deal’s financing when it commissioned an insolvency opinion to justify not closing on the transaction instead of approaching Huntsman management to discuss mitigation of financial problems. Lastly, the Court decided to not rule on the actual solvency of Hunstman, as the issue would not be ripe until the banks involved decided whether they would fund the transaction. The Court ordered Hexion to perform all of its covenants and obligations under the merger agreement, other than its obligation to close.
