What Two Companies Weren't the Right Mix? - December 15, 2008

Is money so tight that companies can’t even get funding to buy other companies? In what would have been a $6.5B agreement by Hexion Chemicals Inc. to take Huntsman Corp. (HUN) private, the deal turned out to be a $1B settlement agreement with Apollo Global Management LP, the parent company of Hexion.

In a deal that was first announced back in July of 2007, Hexion then tried to back out of the deal citing that Huntsman’s financial standing was deteriorating. When Huntsman relayed the abandonment of Hexion from the buyout, a Delaware judge ordered Hexion to maintain their course of action and keep the arrangement alive.

Hexion’s main creditors for the deal, Credit Suisse (CRP) and Deutsche Bank (DB), left the deal back in October amidst the collapse of the financial markets and the demise of the credit industry to be specific. Find out more about Hexion’s settlement with Huntsman at Bloomberg.

As part of the $1B settlement, Huntsman will receive a $325M termination fee, paid by Hexion, and another $425M cash payment made by the parent company, Apollo. On top of that, the remainder of the balance, $250M, will be in exchange for the 10-year convertible notes the company offered in the deal. Huntsman expects to receive at least half of the settlement by the end of the year, with the balance to be paid in full by March 31, 2009.

Leon Black, Apollo's chairman, said the agreement put an end to months of uncertainty. He also added, "We are happy to be resolving this situation in the best interest of our investors. It puts to an end the six-month disagreement and distraction between our companies. As the majority stakeholder in Hexion and now an investor in Huntsman, we look forward to both companies traversing this economic cycle and prospering."

Huntsman President and Chief Executive Peter R. Huntsman said the settlement would improve his company's balance sheet and takes uncertainty out of the business. "A billion dollars in today's market is a lot of money," said Huntsman. He would go on to say that he felt his company would not only "survive," but also "prosper."

In today’s trading session, shares of Huntsman plunged $3.00, or 51%, to $2.86 per share, after sinking to a 52-week low of $2.82 earlier in the session. The stock has fallen about 88% from its 52-week high. When the deal was first announced back in 2007, Hexion had offered $28 per Huntsman share.

For more information on the stock and options markets check out the wealth of information at BetterTrades.