HOUSTON—Kraton Performance Polymers said Aug. 6 that its board of directors withdrew its prior recommendation that Kraton's stockholders approve a deal in which Houston-based Kraton would merge with the styrenic block copolymer operations of LCY Chemical Corp.
In addition, Kraton said that should LCY then decide to terminate the deal that Kraton should not be required to pay a $25 million breakup fee because of a July 31 explosion in a gas pipeline in Kaohsiung, Taiwan, that transports propylene gas to LCY.
The underground blasts in Taiwan's second largest city, caused by leaks of propylene gas, ripped through Kaohsiung's streets on the evening of July 31, killed 30 people and injured more than 300, and buried cars and emergency vehicles.
Before the explosions, local residents reported chemical smells, and the China General Terminal and Distribution Corp. detected a pressure drop in the pipelines that transported the feedstock gas to resin maker LCY Chemical Corp., city officials said in a written statement. CGTD initially shut off the lines, but quickly resumed the flow at LCY's request.
LCY apologized to the public and said in an Aug. 3 statement that it has been “forthcoming on all information available” and will not “evade any responsibility chargeable.”
The company is not responding to media inquiries, saying it cannot comment on the particulars before the government announces the results of its ongoing investigation.
Kaohsiung city has asked a local court to freeze 1.9 billion Taiwan new dollars (US$63.4 million) of LCY's assets as the investigation continues. The city said in an Aug. 6 statement that victims and their organizations also are seeking similar actions.
The deal between Kraton and LCY originally was announced in January. Kraton's informed LCY on June 30 that it intended to withdraw its recommendation that shareholders approve the combination agreement unless the two parties agreed to revised terms. Kraton said the operating results for LCY's SBC business had declined in this year's first quarter and that an SEC filing discussing a decline in forecasted results led to a decline in Kraton's stock price and negative reactions from stockholders.
Despite “numerous discussions” between the parties since June 30, Kraton said that LCY informed the Houston firm Aug. 4 that it would no longer negotiate and would not agree to any revision in terms from the original deal.
Kraton said that with its board's withdrawal of its recommendation, LCY now has the contractual right to terminate the agreement. Kraton claims it would not have to pay the $25 million fee to withdraw from the deal because a provision in the original agreement said the fee would not be required if LCY had a “material adverse effect”—and Kraton's board said the July 31 explosions qualify.
LCY has seen its stock price fall more than 35 percent since the blasts.