Apollo worked 'in secret' to kill merger - suit

23 June 2008 19:54  [Source: ICIS news]

HOUSTON (ICIS news)--The parent firm of Hexion Specialty Chemicals worked 'in secret' to kill its $10.6bn (€6.8bn) merger with Huntsman, Huntsman said in a lawsuit filed on Monday.

Huntsman is seeking at least $3.1bn in damages in its suit against Apollo, the parent company of Hexion. Huntsman also sued two Apollo principals, Leon Black and Joshua Harris.

Huntsman's suit followed one that Hexion filed in Delaware state court. In that suit, Hexion argues that the merger would result in an insolvent company, due to Huntsman's deteriorating finances.

As such, Hexion said it should not pay a $325m fee to terminate the merger with Huntsman.

Huntsman's suit alleged that, all along, Apollo intended to sabotage the merger under its present terms. Once Apollo eliminated any potential bidders, it planned to wait for the right time to renegotiate the merger at a lower price, Huntsman alleged.

"Subsequent events have proven Apollo’s duplicity many times over," Huntsman alleged. "Apollo was working in secret on a plan to scuttle the merger".

Apollo referred all questions about the suit to Hexion, which called Huntsman's lawsuit "baseless".

Nonetheless, Huntsman's suit revealed more details about merger, one of the biggest made during the buyout boom that started earlier this decade.

Apollo made its first offer to Huntsman in November 2005, at $25/share, according to court documents. This and a subsequent proposals fell apart during discussions.

In May 2007, a round of bidding started with an unidentified company, which made an offer of $24/share, Huntsman said. By early June, Huntsman was considering offers from Apollo, Basell and a third unnamed company, it said.

By 25 June, Huntsman was considering a $26/ share offer by Apollo and a $25.25/share from Basell, the company said. Huntsman chose the Basell offer since it could be closed quicker with fewer regulatory hassles.

Apollo responded with a $27/share offer, later increased to $28/share, Huntsman said. To demonstrate its commitment to close the deal, Apollo agreed to pay half of the $200m termination fee with Basell.

Apollo also agreed to sue any bank if it backed out of its committment to finance the deal, Huntsman said.

Apollo's assurances won over Huntsman, and it accepted the agreement, according to court documents.

However, while Apollo made assurances to Huntsman, its hired an advisory firm, Duff & Phelps, to render an opinion on the likely success of the merged company, the suit said.

"Apollo provided to Duff & Phelps the information on which it wanted the opinion based and told Duff & Phelps not to consult with Huntsman’s management about the information - an absurdity Duff & Phelps itself acknowledged in its report," Huntsman said in the suit.

Duff & Phelps said the merged company would be insolvent. However, Apollo never discussed the accuracy of the report with Huntsman, the suit said.

Nor did Apollo discuss any solutions that would address the problems identified in the report, Huntsman said. "It is inconceivable that if Apollo wanted to proceed with the transaction, it would not seek Huntsman’s help with the solvency opinion," the suit said.

The report was part of a deliberate decision by the two Apollo principals, who wanted to kill the merger agreement at its current terms, Huntsman alleges. "There was no reason for Apollo to obtain a solvency opinion at this time," the suit said.

Neither the merger agreement nor the bank commitment letters required Apollo to seek out a solvency opinion, Huntsman said. It alleged that the sole purpose of the Duff opinion was to force Huntsman to negotiate the deal at a lower price.

News of the Duff report and the Hexion lawsuit caused Huntsman's stock prices to plunge by more than $3.6bn below the offer price of $28/share, the suit said. "Apollo intended this result," Huntsman alleged.

($1 = €0.64)

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By: Al Greenwood
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