Huntsman & Hexion Terminate Deal, Settle Litigation

PHILADELPHIA (Reuters) – Huntsman Corp (HUN.N: Quote, Profile, Research, Stock Buzz) said on Sunday it had terminated its $6.5 billion agreement to be acquired by Apollo Management’s Hexion Specialty Chemicals Inc and settled litigation against the private equity firm for $1 billion.

The scuttled deal is the lastest merger pact to unravel amid the credit crisis. Last week, the $28.3 billion leveraged buyout of BCE Inc collapsed after the Canadian telecommunications company failed to pass a solvency test by its auditors.

The Hexion-Huntsman deal has been locked in legal battles for months. Apollo’s Hexion Specialty Chemicals unit had agreed to buy Huntsman, a specialty chemicals maker, in July 2007. The deal faltered amid the credit crisis and legal battles as Apollo tried to walk away from the deal, citing insolvency concerns about the combined company.

Huntsman, however, said it would continue its lawsuit against Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) and Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) in Texas. Huntsman has argued that the banks conspired with Apollo and interfered with Huntsman’s prior merger pact with previous suitor Basell. A jury trial on those claims is set to begin on May 11, 2009.

Under the settlement with Apollo, Huntsman will receive a $325 million break-up fee. Hexion said it had commitments from Credit Suisse and Deutsche Bank to fund the termination fee.

Affiliates of Apollo will also make cash payments to Huntsman totalling $425 million. Certain Apollo affiliates also will pay Huntsman an additional $250 million in exchange for 10 year convertible notes issued by Huntsman.

At least $500 million of the payments are to be paid to Huntsman on or before December 31, and any remaining payments that have not been made by that date must be made on or before March 31, Huntsman said.

Separately, an Apollo affiliate agreed to make a $200 million investment in Hexion’s parent company, Hexion said in a statement. Hexion said the proceeds would be used for general business purposes and it was well-positioned to compete as a stand-alone company.

“We are pleased that this matter has been resolved,” said Hexion Chairman and Chief Executive Craig Morrison.

“We appreciate Apollo’s ongoing support of Hexion,” Morrison said. “Their incremental investment in Hexion will help to solidify our leadership position in the marketplace. Moreover, it will help us remain a strong competitor in a difficult economic environment.” (Reporting by Jessica Hall; Editing by Lincoln Feast)