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The private equity dance always looks the same now. In 2006 or early 2007, when credit was plentiful and the stock market was up 100% a year, funds would offer buy-outs of public companies at huge premiums. As the credit markets fell apart, the private equity people would come up with excuses to walk on the deals. Often, the target companies felt they had no recourse and ran away like whipped dogs. Some challenged the matters in court.

Apollo Management, run by a former Drexel Burnham executive, an associate of the great Mike Milken, has decided to skip on a deal it set to buy Huntsman (HUN).

Apollo set the price for Huntsman at $6.5 billion. Now the fund says that Huntsman’s financial fortunes have gotten worse over the last several months. Because of rising commodities prices, that conclusion about Huntman’s numbers is largely true.

The regular exit route for buy-out firms from the deals which they set a year or more ago is based on their feeling that the deals were iron-clad when things were good, but mutable when times were tough.

Relativism in business is not new. What makes money is the beacon for what it right. The courts will decide the Huntsman case. If there is any justice, Apollo will be forced to keep its word. Public company shareholders can be suckers, so someone has to look out for their interests.

Douglas A. McIntyre

If you thought that the mid-single digit billion dollar mergers were safe from being terminated, think again.  Huntsman Corp. (NYSE: HUN) is being destroyed in after-hours trading after Hexion Specialty Chemicals announced that it has filed suit in Delaware to exit its contractual obligations to acquire the company.

The Hexion-led investor group is seeking to terminate its rights in the proposed $10.6 Billion acquisition of Huntsman Corp.  Hexion has said in this suit filed that it believes that the capital structure agreed to by both Huntsman and by Hexion for the combined company is no longer viable.

The reasons noted are because of Huntsman’s increased net debt and its lower than expected earnings.  Hexion notes that both companies are individually solvent but it believes that the merger’s capital structure previously agreed to would render the combined company insolvent.

Hexion also said in its filing that it does not believe that the banks will provide the debt financing for the merger that was contemplated by their commitment letters. Hexion stated in its suit that, while it will continue to use its reasonable best efforts to close the transaction, which includes obtaining all necessary antitrust and regulatory approvals as required by the merger agreement, it does not believe that alternate financing will be available.

If you have been following this merger for very long you will know this deal looked on the rocks from the start.  The company traded as high as $28.00 after the deal came to light in 2007 and the stock was north of $25.00 on January 1, 2008.  It has steadily slid down to almost $20.00 before this merger was terminated.

Unfortunately this stock is down at $13.50 on heavy trading volume in after-hours trading.  Huntsman has been its own public entity since early in 2005.  The prior lows had been around $16.00 and the 52-week trading range was $18.70 to $28.40.  Kiss this one goodbye.

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Jon C. Ogg
June 18, 2008