Updated: Huntsman on Sunday settled a bruising fight with Apollo Management, the private equity giant, for a little over $1 billion, in a hasty end to one of the largest-ever battles over a leveraged buyout.
Under the terms of the settlement — first reported by DealBook Sunday evening — Huntsman has declared its $6.5 billion deal dead, and the chemical maker will end bitter court battles with Apollo’s Hexion Specialty Chemicals in Texas and Delaware, these people said. More than $500 million of the fees negotiated under the settlement will be paid to Huntsman by Dec. 31.
The settlement means the effective end of one of the most contentious private equity fights since the buyout boom collapsed in the summer of 2007. Dozens of high-profile deals, including those for the student lender Sallie Mae and the rental-equipment operator United Rentals, collapsed into often-acrimonious legal fights.
The settlement also comes as something of a surprise. Last week, Huntsman said that its board had formed a litigation committee to oversee its legal efforts. It was crafted quickly midweek at the New York offices of Vinson & Elkins, the law firm advising Huntsman, following an hour-long meeting between Leon D. Black, an Apollo cofounder, and Jon Huntsman, the company’s paterfamilias.
Huntsman was forced to reverse its hardline stance as it faced a cash crunch. By taking the immediate payout by Apollo, the chemical maker is receiving a warchest that allows it to weather its financial troubles.
Both Huntsman and Apollo stand to gain from the settlement. While Huntsman will not receive the $28 a share it would have gained in the original deal, it will receive much-needed new capital at a time when specialty chemical makers are suffering. Shares in Huntsman have plunged 77 percent this year.
And Apollo will dodge a potentially serious blow. Huntsman had sued Apollo and two of its leaders, Leon D. Black and Joshua Harris, in a Texas state court for interfering with a previously agreed deal with another chemical maker, Basell. Were Apollo to have lost that fight, it would have been exposed to potentially billions of dollars in damages.
Moreover, while many analysts had expected Apollo to pay billions of dollars to settle the case, the private equity firm will walk away with a lot more money in its wallet.
Left out of the settlement are Credit Suisse and Deutsche Bank, the two banks that agreed to finance the $6.5 billion leveraged buyout when it was announced last summer, at the height of the credit boom. Since then, however, they had refused to finance the deal, arguing that the combined Huntsman and Hexion would be insolvent post-merger.
With the deal dead, Hexion will likely drop its lawsuit against Credit Suisse and Deutsche Bank in New York, a part of its effort to hold the banks to their financing commitments. Yet Huntsman is likely to pursue its own lawsuit against the two banks in Texas state court.
The settlement will include a $250 million investment by Apollo in Huntsman, in which the private equity firm will receive 10-year convertible preferred securities. Apollo will also make an additional $425 million payment to Huntsman, which could be paid back with any proceeds won from Credit Suisse and Deutsche Bank in the Texas lawsuit.
Huntsman also plans to pay an additional $325 million that it will obtain from breakup fees owed it by Credit Suisse and Deutsche Bank, people briefed on the settlement said.
–Michael J. de la Merced and Andrew Ross Sorkin
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