Frontier Oil sues Holly Corp. regarding proposed change in merger agreement

By OGJ editors
HOUSTON, Aug. 26 -- Frontier Oil Corp., Houston, has filed a lawsuit in Delaware Chancery Court against Holly Corp., Dallas, alleging that Holly breached a contract by trying to amend the terms of a $450 million merger agreement.


Holly and Frontier had agreed to a transaction involving cash and stock (OGJ, Apr. 14, 2003, p. 34). But Holly since has said it wants an all-cash transaction because of concerns about Frontier's financial exposure regarding about potential environmental lawsuits in California.


In court documents, Frontier said the value of the proposed deal would have stayed the same. The original terms called for Holly stockholders to receive one share of Frontier common stock for each outstanding share of Holly common stock, plus a $172.5 million cash payment.


Frontier Chairman and CEO James R. Gibbs said, "While we preferred to proceed with the merger and continue to believe that it was in the best interests of both Frontier and Holly shareholders, Holly has backed out of the merger agreement."


Holly issued a news release denying that it "repudiated or breached the merger agreement" and saying that it had not exercised its various termination rights. In addition, Holly called the "frivolous and without merit."


Reaction
Prudential equity Group Inc. analyst Andrew Rosenfeld of New York said he believed Holly also was influenced by "a new presentation from an investment banker concerning the potential value of its pipeline assets through a master limited partnership."


Standard & Poor's Ratings Services, New York, raised its corporate credit rating on Frontier Oil Corp. to 'BB-' from 'B+' and removed it from CreditWatch with positive implications, where it was placed on Mar. 31.


"Although ratings were to have been raised at the close of the aforementioned
transaction, Standard & Poor's feels that Frontier deserves a rating increase based
on its own merits, most notably a moderation of its financial policies and the strengthening of its balance sheet," Standard & Poor's credit analyst Paul Harvey said.


Frontier's outlook is stable, S&P added.