Huntsman Shares Tumble 40%

PHILADELPIHA/NEW YORK (Reuters) – Huntsman Corp (HUN.N: Quote, Profile, Research, Stock Buzz) shares dived 40 percent on Monday after the chemical company’s $6.5 billion leveraged buyout deal, on the verge of collapse for months, was finally scuttled.

The company said late Sunday it had terminated its agreement to be acquired by a unit of Apollo Management and would receive $1 billion under a litigation settlement with the New York-based buyout firm.

It is the latest merger pact to unravel amid the credit crisis. Last week the world’s biggest leveraged buyout — a $28.3 billion deal for BCE Inc — collapsed after the Canadian telecommunications company failed to pass a solvency test by its auditors.

The original deal for Apollo’s Hexion Specialty Chemicals Inc to acquire Huntsman had valued Huntsman at $28 a share. Those shares tumbled $2.51 to $3.34 in morning trading on Monday.

One investor who declined to be named said the settlement came as a big surprise, as many had thought Huntsman would take the case to court or push for a bigger settlement.

For Hexion, the settlement was seen as a major coup, the investor said.

The Hexion-Huntsman deal has been locked in legal battles for months. Hexion 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, citing insolvency concerns about the combined company.

Huntsman said on Sunday that 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 merger pact with previous suitor, Basell. A jury trial is set to begin on May 11, 2009.

A spokesman for Huntsman declined to comment on whether the chemicals maker had engaged in settlement negotiations with either Deutsche Bank or Credit Suisse.

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 fee.

Affiliates of Apollo will also make cash payments to Huntsman totaling $425 million, and certain Apollo affiliates will pay Huntsman $250 million in exchange for 10-year convertible notes issued by the company.

At least $500 million will be paid to Huntsman on or before December 31. Any remaining payments 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. The funds will be used for general business purposes, it said, adding that it is 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.”

Under the settlement, Hexion agreed that Morrison and various other Hexion and Apollo executives such as Apollo partner Joshua Harris would be available to testify in the Texas trial.

By Jessica Hall and Megan Davies
(Additional reporting by Matt Daily; editing by John Wallace)