Apollo Moves on Huntsman Deal, Other Mergers in Doubt

NEW YORK (Reuters) – New York buyout firm Apollo Management agreed on Thursday to contribute $540 million to its Hexion Specialty Chemicals unit to help it close a contentious takeover of Huntsman Corp (HUN.N: Quote, Profile, Research, Stock Buzz).

The Huntsman deal is one of the last remaining uncompleted leveraged buyout deals struck during the private equity boom. Many other proposed deals have collapsed amid the global credit crisis, and investors have expressed concern about the biggest deal yet to complete, a consortium’s takeover of BCE Inc (BCE.TO: Quote, Profile, Research, Stock Buzz), Canada’s biggest telecommunications company.

Shares of Huntsman closed 28.2 percent higher at $11.64 following the announcement from Apollo and Hexion — the latest twist in a long-running battle between Apollo and the Texas-based chemical company.

Apollo’s Hexion unit was trying to back out of the $6.5 billion, or $28 a share, deal, citing insolvency concerns about the combined entity. But a court last week ordered the two companies to honor terms of the merger agreement or face uncapped damages for breach of contract.

A slew of deals targeted by various private equity firms have collapsed since the global credit crunch hit. Some of these include proposed takeovers of audio equipment maker Harman International Industries Inc (HAR.N: Quote, Profile, Research, Stock Buzz), equipment renter United Rentals Inc (URI.N: Quote, Profile, Research, Stock Buzz) and student lender Sallie Mae, formally known as SLM Corp (SLM.N: Quote, Profile, Research, Stock Buzz).

The Huntsman deal bears some similarities to the battle between buyers, sellers and banks in the Clear Channel Communications deal. The acquisition of the Texas-based radio giant went through Texas and New York courts before being settled for a lower price than originally agreed upon.

Investors are wondering about the C$34.8-billion, or C$42.75-a-share, buyout of BCE Inc (BCE.TO: Quote, Profile, Research, Stock Buzz).

“Everything is in a state of some suspended animation right now and you’d have to put that deal (BCE) in there,” said Michael Holland, founder, Holland & Co, which oversees more than $4 billion.

Ontario Teachers’ Pension Plan is leading the consortium aiming to acquire BCE. The group includes private equity firms Providence, Madison Dearborn Partners and a private-equity arm of Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz).

BCE said in July that its buyers had finalized funding and it expected the deal to close by Dec. 11. BCE’s shares closed at C$34 on Thursday, up C65 cents.

Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) and Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) are due to fund the Huntsman deal; while BCE is to be financed by Citigroup (C.N: Quote, Profile, Research, Stock Buzz), Deutsche Bank, Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) and TD Securities, a unit of Toronto-Dominion Bank (TD.TO: Quote, Profile, Research, Stock Buzz).

TOUGH INVESTMENTS

The Huntsman takeover comes at an inopportune time for Apollo, which has been preparing for a public listing.

The buyout firm, run by investor Leon Black, filed with the U.S. Securities and Exchange Commission in April to register securities already traded on a private exchange and said it planned to list them on the NYSE.

Apollo has also had problems with another investment, Linens ‘n Things, which it bought in 2006 but which recently filed for bankruptcy protection.

In the statement on Thursday, Hexion said it had been informed by Apollo that it would waive its contractual right to a transaction fee in connection with the merger and suspend for three years its ongoing monitoring fees from Hexion.

Late Wednesday, Hexion announced tender offers and consent solicitations for some of its own outstanding notes and those of Huntsman.

Apollo has obtained approval for the deal from both U.S. and European antitrust authorities.

Hexion said it was in discussions with Huntsman on a wide range of matters related to the closing of the deal.

Apollo said its equity commitment and fee waivers were conditioned upon consummation of the merger.

By Megan Davies and Euan Rocha
(Editing by David Gregorio)