Huntsman and Apollo Management settle their feud for $1bn

Settled for $1bn

05 January 2009 00:00  [Source: ICB]

Huntsman and Apollo settle their feud. How did the deal get done and what's next?

IT WAS a tough fight. The drama that was Huntsman's busted merger with Hexion Specialty Chemicals has ended - at least between those two parties - with a $1bn (€718m) settlement between Huntsman and Hexion owner Apollo Management.

Huntsman gets $1bn in total cash proceeds from Apollo and its affiliates - $750m in cash with no strings attached, plus another $250m in exchange for 10-year, convertible notes issued by Huntsman to Apollo.

The notes have a coupon of 7% and are convertible to Huntsman common stock at a price of $7.86 per share.

Huntsman president and CEO Peter Huntsman said the company was not for sale and will move forward, focusing on its operations through the downturn.

"Huntsman is not for sale - not in today's market. The M&A market is basically shut down," said Huntsman, in an interview with ICIS.

In July 2007, US-based Huntsman agreed to be acquired for $28 per share, or $6.5bn excluding debt, by US-based Hexion, which then backed out of the deal in June 2008. "In the near term, this settlement will allow us to reassure our customers, suppliers and trade creditors that we're here for the long term. This significantly strengthens our balance sheet," said Huntsman.

At the end of the third quarter, Huntsman had $3.84bn in net debt. The company is highly leveraged and carries a "BB-" rating from credit ratings agency Standard & Poor's.

Huntsman will focus on its operations and "work very aggressively to move in as many institutional investors into our company as we can," he said.

However, investors were disappointed with the settlement and headed for the exits. Shares in Huntsman plunged by $2.87, or 49%, to $2.96 per share on December 15, 2008 - the day the settlement was announced. "I think you have some short-term investors - arbs and hedge funds - that were probably investing in a court case and not necessarily in the company," said Huntsman. "I'm surprised to see this reaction. I cannot begin to fathom how you can have a $1bn settlement in today's market and the stock falls by 50%."

Going through the courts could have taken years to reach an ultimate ruling.

"Even if we were to have won a very large settlement in May in the Delaware courts, we'd be looking at an appeal to the Delaware Supreme Court, which could take another six months, and then the Federal appeals process," said Huntsman. "We'd probably be looking at multiple years before we saw a penny if we pursued this in court."

The Delaware Chancery court, where Huntsman won in Hexion's lawsuit to terminate the deal, was expected to rule on damages in May 2009, said Huntsman.

Huntsman will proceed with its lawsuit against banks Credit Suisse and Deutsche Bank in a Texas court for pulling the financing for the deal. The trial is set to start on May 11, 2009.

"We also have the opportunity to settle or go to court with these banks for multiple billions of dollars," said Huntsman.

HOW THE DEAL GOT DONE

Huntsman chairman Jon Huntsman and Apollo principal Leon Black hammered out the settlement between their two firms in a series of closed-room sessions that started on Tuesday, December 9 and ended on December 11, said Peter Huntsman.

"We had our first meeting on Tuesday morning, which started off pretty cold. They gave us a ridiculously low offer, and, in fairness to Apollo, if you were to ask them, we probably gave them a ridiculously high offer," said Huntsman.

About two hours into the meeting, which included parties from Huntsman and Apollo and their lawyers, the talks deteriorated to the point where the parties decided to call it quits, he said.

"My father then sat down with Leon Black and they started a one-on-one negotiation with none of the lawyers in the room.

"Then things started to get settled, and by Thursday they came to terms. The lawyers then put everything in writing," said Huntsman.

"These are two very experienced war horses with tens of billions of dollars of deals between them," said Huntsman, referring to his father and Black. "They ended up with a good deal."

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Author: Joseph Chang
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