Kraton Performance Polymers Inc. recently announced it has notified Taiwan-based LCY Chemical Corp. that its Board of Directors intends to withdraw its recommendation that Kraton stockholders approve the previously announced combination agreement under which Kraton would combine with LCY’s styrenic block copolymer (SBC) operations. Before the Kraton Board changes its recommendation, Kraton is reportedly required by the Combination Agreement to provide LCY with at least five business days’ written notice of the intention to withdraw or change its recommendation. During these five business days, if requested by LCY, Kraton must negotiate in good faith with LCY regarding any revisions or adjustments proposed by LCY to the terms and conditions of the Combination Agreement that would enable the Kraton Board to continue to recommend to Kraton stockholders the approval and adoption of the Combination Agreement, as so revised or adjusted.

Under the Combination Agreement, which will remain in effect unless and until it is terminated in accordance with its terms, the Kraton Board may withdraw or change its recommendation in certain circumstances upon the occurrence of certain intervening events since the agreement was signed on January 28. The notice from the Kraton Board cited the decline in the operating results for the LCY SBC business in the first quarter of 2014 and the related decline in its forecasted results thereafter, as Kraton discussed in an SEC filing on Form 8-K on June 24, 2014, together with the related decline in Kraton’s stock price and negative reactions from stockholders following the June 24 disclosure.

LCY and Kraton may engage in negotiations to determine whether they can mutually agree to changes in the terms of the combination agreement, as this would enable the Kraton Board to continue to recommend the transaction to its stockholders.

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