UPDATE 5-Court backs Huntsman over buyout, stock soars

(Adds details about debt marketing period in paragraph 16)

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.

In a statement, Hexion said it was disappointed by the court's decision and was reviewing the ruling and its options.

In a letter sent later on Tuesday to Huntsman, Hexion said it was notifying them that the marketing period was starting on Tuesday Sept. 30. The marketing period is the time during which the lending banks are to syndicate the debt. The marketing period lasts 20 consecutive business days according to the Judge's opinion.

Lamb said in his ruling that if the deal did not close by Oct. 1, the termination date for the merger would be extended until the court determined that Apollo and Hexion had complied with his order.

Huntsman Chief Executive Peter Huntsman said the chemical maker continues to be a strong company and he was gratified with the court's ruling.

"We call on Hexion to complete the remaining actions required by the merger agreement in compliance with the court's order and proceed to closing," he said in a statement.

Huntsman said that in addition to denying the relief sought by Apollo and Hexion, the court found that Hexion had breached a number of obligations and covenants under the merger agreement.

Huntsman said it continues to seek damages exceeding $3 billion in a lawsuit filed in Texas against Apollo and its partners Leon Black and Joshua Harris.

Apollo and Hexion had argued that they were not obliged to close the deal, as Huntsman's results had suffered from a material adverse effect (MAE). The MAE clause gives parties the right to walk away from a deal when there is a material change that affects the transaction.

Lamb said the seller had not suffered a material adverse effect, as defined in the merger agreement.

The opinion also said the Duff & Phelps insolvency report presented by Apollo and Hexion was an unreliable opinion.

"(The) insolvency opinion was produced with the knowledge that the opinion would potentially be used in litigation, was based on skewed numbers provided by Apollo, and was produced without any consultation with Huntsman management," the judge said. (Additional reporting by Savio D'Souza in Bangalore; Editing by Gerald E. McCormick and John Wallace)