Private Equity News & Analysis

Apollo forced to honour $10.6bn Huntsman deal

Following a contentious court battle, the global buyout firm’s portfolio company Hexion Specialty Chemicals has been ordered to perform its contractual obligations in its agreed $10.6bn buyout of Huntsman Corporation. The company’s arguments of a material adverse affect and insolvency were rejected.

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A Delaware Chancery Court judge has struck down Apollo Global Management portfolio company Hexion Specialty Chemical’s attempt to walk away from its $10.6 billion (€7.4 billion) agreed acquisition of chemical manufacturer Huntsman.

“[Huntsman] has not suffered a material adverse effect, as defined in the merger agreement … [Hexion] has knowingly and intentionally breached numerous of its covenants under that contract,” said Delaware Chancery Court Vice Chancellor Stephen Lamb.

Hexion filed a lawsuit in June asserting that Huntsman had suffered a material adverse change in its business following the merger agreement in August 2007 and the company was under no obligation to complete the transaction or pay a break-up fee.

Despite acknowledging that “substantial obstacles” to closing remain, Lamb ordered Hexion to “perform all of its covenants and obligations (other than the ultimate obligation to close)”. Lamb also frowned upon the “course of action [Hexion] and [Apollo] have pursued in place of the continued good faith performance of [Hexion’s] contractual obligations”.

Hexion had said that the combined company would be insolvent as a result of the debt load built into the deal and that financing would not be available. Lamb said Hexion’s insolvency report was unreliable, and said Hexion had no contractual right to terminate the agreement on the basis of potential insolvency or lack of financing.

Huntsman chief executive Peter Huntsman said: “Apollo’s misguided attempt to use 2008’s turbulent energy and financial markets to construct a solvency issue where none existed has now been exposed. We call on Hexion to complete the remaining actions required by the merger agreement in compliance with the Court’s order and proceed to closing.”

Huntsman continues to pursue damages of more that $3 billion in a Texas lawsuit against Apollo and the firm’s founders Leon Black and Joshua Harris.

Hexion said in a statement: “We are disappointed by the court’s decision. We are reviewing the decision and our options.”

Hexion declined to comment beyond its issued statement. Huntsman has not responded to requests for comment at press time.