Hexion Specialty Chemicals, the leading global manufacturer of thermosetting plastics (2007 revenues: US$ 5.8 billion) has pulled out of its agreement to buy out Huntsman Corporation, a leading manufacturer of plastics and chemicals (2007 revenues: US$ 10 billion) as the deal is no longer economically viable due to a severe erosion in the stock values of the latter in the last one year.
In 2007, Hexion had offered to buy out Huntsman at US$ 28 per share. Based on this offer, Huntsman pulled out of a deal it had made earlier with Basell for selling out to them. The Hexion agreement had provided that they would pay Huntsman a sum of US$ 325 million as a break-up fee in case the merger did not go through. However, since the announcement of the merger agreement, Huntsman’s finances have deteriorated substantially and their share price dropped to US$ 5.25 per share in October, 2008. Hexion had petitioned that they be allowed to withdraw from the deal without payment of the break-up fee as the combined entity would now be financially insoluble. A Delaware judge had turned down Hexion’s appeal and ruled that they must go through with the agreement.
Hexion have now finally decided not to go through with the merger and have negotiated a total settlement of US$ 1 billion with Huntsman. In addition to the break-up fee of US$ 325 million, certain affiliates of Apollo Management LP, the controlling shareholder of Hexion, will make cash payments to Huntsman totaling US$ 425 million and an additional US$ 250 million in exchange for 10 year convertible notes issued by Huntsman for that principal amount. The notes bear interest at 7 per cent per annum and are convertible to shares of Huntsman common stock at any time at a conversion price of US$ 7.8857 per share subject to certain anti-dilution adjustments.
Huntsman has already received US$ 825 million from Hexion and the balance US$ 175 million will have to be paid by March 31, 2009.
This agreement resolves all Huntsman’s pending claims against Apollo and Hexion. However, it does not resolve Huntsman’s multi-billion dollar claims against Credit Suisse and Deutsche Bank that they conspired with Apollo and tortiously interfered with their prior merger agreement with Basell as well as the later merger agreement with Hexion. A jury trial on these cases is due to begin on May 11, 2009. As part of the settlement agreement, Apollo and its principals have agreed to fully cooperate in connection with Huntsman’s litigation against the banks.
