December 22, 2008

Volume 86, Number 51

p. 7

Mergers And Acquisitions

Hexion, Huntsman Drop Merger Deal

With a $1 billion settlement, the Huntsman takeover saga ends

Alexander H. Tullo

HEXION SPECIALTY Chemicals has accomplished through a $1 billion settlement what it couldn't do in the courts: walk away from its $10.6 billion takeover of Huntsman Corp.

Hexion will pay Huntsman the $325 million breakup fee that was part of the original merger agreement. Affiliates of Hexion's parent, private equity firm Apollo Management, will make cash payments to Huntsman totaling $425 million. They will also buy $250 million in Huntsman debt.

In exchange, Huntsman dropped a suit in Texas seeking more than $3 billion from Apollo. It also got Hexion to cooperate with its suit against Credit Suisse and Deutsche Bank, the two banks that backed out of an agreement to lend the money needed to complete the merger.

"Receipt of these proceeds will enhance the strength of Huntsman's balance sheet and better position our company to prosper during the current turbulence in the global economy," CEO Peter R. Huntsman says.

Citigroup stock analyst P. J. Juvekar agrees that the money will come in handy. "Although Huntsman was not able to complete the deal as it wished, the settlement does help alleviate some of the pressure heading into a difficult 2009," he wrote in a report.

Hexion had been seeking to scuttle the merger since June, when it sued Huntsman to nullify an agreement the two companies had signed a year earlier. It argued that Huntsman's business performance had deteriorated since the deal was signed and that an increase in Huntsman's debt made it impossible to finance the deal. In September, the judge sided with Huntsman and warned Hexion it would face huge liabilities if it didn't try to complete the deal (C&EN, Oct. 6, page 10).

Without the chance of a $28.00-per-share buyout, investors soured on Huntsman stock. On Monday, Dec. 15, when the settlement was announced, Huntsman shares lost nearly half their value. They ended the day at $2.98 per share, valuing the company at about $700 million.

The sale of Hexion's specialty epoxy business to the Czech firm Spolchemie was contingent on the completion of the Hexion-Huntsman deal. It has been called off.

Chemical & Engineering News

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