UPDATE 5-Court backs Huntsman over buyout, stock soars

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By Euan Rocha and Megan Davies

NEW YORK, Sept 30 (Reuters) - A court ordered private equity firm Apollo Management to honor the terms of its $6.5 billion agreement to acquire chemical maker Huntsman Corp (HUN.N), sending Huntsman shares soaring more than 70 percent.

The deal has teetered on collapse for months after Apollo and its Hexion Specialty Chemicals Inc unit tried to back out of the $28-a-share arrangement, announced at the height of the private equity boom in July 2007.

Apollo and Hexion filed suit against Huntsman in June, arguing that the combined company would be insolvent if the deal went ahead. Huntsman countersued.

Late on Monday, Judge Stephen Lamb of the Delaware Court of Chancery in Wilmington rejected Apollo's and Hexion's claims and prohibited them from terminating the merger agreement.

Huntsman said on Tuesday it sued affiliates of Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE), the banks which had agreed to finance the deal, claiming they were "conspiring with Apollo ... to interfere" with the deal, among other things.

Both banks declined comment.

"It's a pretty substantial victory for Huntsman," said Joel Greenberg, a partner at Kaye Scholer who specializes in mergers and acquisitions, commenting on Judge Lamb's ruling. He forecast the court ruling would be difficult to overturn on appeal.

"Typically, an appellate court is not going to overturn a trial judge's inferences from the testimony and factual conclusions," he said.

He said the most likely outcome was completion of the acquisition at a slightly lower price -- similar to the case involving the purchase of radio operator Clear Channel Communications by private equity firms Bain Capital Partners and Thomas H. Lee Partners [THL.UL].

"The reality is that I think it settles, but Huntsman is now in a very strong position," Greenberg said.

Huntsman shares closed up $5.25 at $12.60 on the New York Stock Exchange.

The court said the merger agreement does not allow Huntsman to force Hexion to close the deal.

"If all other conditions precedent to closing are met, Hexion will remain free to choose to refuse to close," the judge said.

However, the judge said that if Hexion's refusal to close resulted in a breach of contract, it would be liable to Huntsman for damages not capped by the $325 million break-up fee.