Apollo settles Huntsman dispute

Huntsman is due to receive a $1bn break-up fee from various parties involved in the failed deal, which was originally agreed in August 2007 as a $10.6bn add-on acquisition.

The merger agreement between Apollo Global Management-backed Hexion Specialty Chemicals and chemical manufacturer Huntsman has been terminated for $1 billion, Huntsman said, bringing to an end a dispute that has gone on for almost seven months.

The company has settled its claims with Apollo and some of its affiliates in connection with the merger agreement. The company expects Credit Suisse and Deutsche Bank to pay $325 million as a break-up fee under an existing commitment. It will also be paid cash totaling $425 million by Apollo, in accordance with a settlement agreement. In addition to fees paid, Apollo Global Management will acquire 10-year convertible notes worth $250 million from Huntsman. The convertible notes may either be repaid at maturity in cash or commons stock at Huntsman’s choice.

Half the amount will be paid to Huntsman prior to the end of 2008, while the remainder will be paid before 31 March 2009. The settlement resolves all the company’s claims against Apollo in relation to its prior merger agreement with Basell AF, the company said in a statement.

“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,” Leon Black, chairman of Apollo Global Management, said.

Huntsman’s claims against Credit Suisse and Deutsche Bank have not, however, been resolved as yet. The company alleges that the banks conspired with Apollo and interfered with its prior merger agreement with Basell and the subsequent agreement with Hexion. 

The banks were also sued by Hexion in October, in an attempt to force them to fund the deal as orginally agreed. Just a few days before the deal was to close, the banks declined to provide financing, saying that a solvency opinion obtained by Huntsman did not meet the conditions of the deal.

Prior to that, the private equity firm had tried to terminate the merger. In June, it argued that the chemicals maker had suffered a material adverse change in its business following the merger agreement and that it was under no obligation to complete the deal or to pay a break up fee. However, a Delaware Chancery Court judge ordered Apollo to make its best effort to move forward with the deal and rejected its argument in September.