Apollo exercises MAC clause in $10.6bn Huntsman deal

The private equity firm has said the change in debt markets coupled with a downturn in the chemical company's business nullifies the transaction.

Apollo Management has filed a lawsuit asserting that Huntsman has had a material adverse change in its business, in an attempt to walk away from a $10.6 billion (€6.8 billion) deal agreed last August with the partially-listed US chemical manufacturer.
 
The lawsuit, filed by portfolio company Hexion Specialty Chemicals in the Delaware Court of Chancery, states that the combined company would be unable to support the debt load built into the previously agreed capital structure. Hexion also said in the court filing that the company does not believe the banks will provide the debt financing agreed in their commitment letters and does not believe alternate financing will be available.
 
A Hexion spokesperson declined to comment.
 
On the basis of “substantial deterioration in Huntsman's financial performance, the increase in its net debt and the expectation that the material downturn in Huntsman's business will continue for a significant period of time”, Hexion claims that Huntsman has suffered a material adverse effect as contractually defined.
 
Hexion said in a statement that it will “continue to use its reasonable best efforts to close the transaction” as originally agreed.

“We believe Hexion and Apollo's action are inconsistent with the terms of the merger agreement,” said Huntsman president and chief executive Peter Huntsman. “These actions appear to be a blatant attempt to deprive our shareholders of the benefits on the merger agreement that was agreed to nearly a year ago.”

Last August, Hexion agreed to acquire all outstanding Huntsman shares for $28 each in cash plus debts of $3.7 billion. In order to agree to the deal, Huntsman terminated a previously agreed buyout offer from Basell, a plastics company owned by Russian billionaire Len Blavatnik. Hexion and Huntsman each paid half of the $200 million break-up fee to Basell.

Huntsman's stock closed at $20.86 per share on 18 June. On news of the lawsuit, the stock opened at a price of $12.36 on 19 June.