M&A

Huntsman Shoots Back at Apollo over Hexion

Suits over the Huntsman-Hexion deal escalate with an action that also names Leon Black and Joshua Harris, seeking $3b of damages.
Stephen TaubJune 23, 2008

Huntsman fired a retaliatory shot in its tense legal battle over its would-be merger with Hexion Specialty Chemical. Huntsman’s targets in the suit, seeking $3 billion in damages, were Apollo Management and partners Leon Black and Joshua Harris.

Huntsman said it sued Apollo Management and partners Leon Black and Joshua Harris for fraud and “tortious interference” for coaxing Huntsman to terminate a prior merger agreement with the Dutch company Basell, and instead to enter into a merger agreement with Apollo affiliate Hexion Specialty Chemicals instead.

“It is now clear that, to get Huntsman to terminate its contract with Basell, Apollo falsely represented to Huntsman its commitment to closing a merger with Hexion at $28 per share, when it really intended all along to then delay the process and create enough problems with the transaction to bring us back to the table at a lower price,” said Peter Huntsman, president and CEO. We intend to pursue every available legal action required to hold Apollo, Black and Harris responsible for their ruinous actions.”

Hexion responded by calling the lawsuit “baseless.” A call by CFO.com to Apollo was not immediately returned.

The lawsuit comes on the heels of Friday’s announcement that Hexion had sued as part of a move to back away from its $10.6 billion merger agreement with specialty-chemical maker Huntsman, claiming the company’s financial condition has materially worsened. Hexion asserted that Huntsman increased its net debt and that its earnings are now lower than expected. “While both companies individually are solvent, Hexion believes that consummating the merger on the basis of the capital structure agreed to with Huntsman would render the combined company insolvent,” said Hexion Friday.

After the Huntsman suit, Hexion said that the litigation “violates a clear provision of the merger agreement which requires that any litigation be brought exclusively in the State of Delaware. As we alleged in our suit, primarily due to Huntsman’s underperformance, we believe that consummating the merger on the basis of the capital structure agreed to with Huntsman would render the combined company insolvent. In fact, Huntsman’s suit does not dispute that the combined company would be insolvent. We believe Huntsman’s lawsuit is wholly without merit.”

On Monday, Huntsman said it intends to “vigorously contest the false and misleading allegations” made in the suit filed by Apollo and Hexion last week. “While the impression created by Apollo’s recent statements about Huntsman’s financial performance and strength almost seems designed to inflict damage to our company and its relationships with its employees, suppliers and customers, in fact Huntsman is a strong and profitable company, with ample financial resources to continue operating our business,” said Peter Huntsman. “We expect that our Adjusted EBITDA in the second quarter of 2008 will be in line with that achieved in the first quarter, reflecting the actions we are taking to increase our pricing to offset higher raw material and record high energy costs. Our results in May were stronger than those achieved in April and we expect this trend to continue.”