Huntsman, Hexion end merger effort

The on-again, off-again merger of the chemical giants is now officially off. Huntsman walks away with $1 billion.

Huntsman Corp. (The Woodlands, Texas) and Hexion Specialty Chemicals Inc. (Columbus, Ohio) announced on Dec. 15 that they have agreed to terminate their merger agreement after more than a year of negotiations and disagreement over parameters of the deal. In addition, Huntsman announced that it reached an agreement with Hexion, Hexion's parent company Apollo Management LP (New York, N.Y.) and certain of its affiliates to settle Huntsman’s claims against Hexion, Apollo and its affiliates arising in connection with Huntsman’s merger agreement with Hexion. Hexion will pay Huntsman $1 billion under the agreement.

In addition to the $325 million break-up fee to be paid as provided in the merger agreement and which Hexion expects will be funded by Credit Suisse and Deutsche Bank under an existing commitment, certain affiliates of Apollo will make cash payments to Huntsman under the Settlement Agreement totalling $425 million. Certain affiliates of Apollo also will pay Huntsman an additional $250 million in exchange for 10-year convertible notes issued by Huntsman in that principal amount, which may be repaid at maturity in cash or common stock at Huntsman’s election.

The Settlement Agreement also resolves Huntsman’s pending claims against Apollo and its affiliates relating to Huntsman’s prior merger agreement with Basell AF.  In announcing the settlement, Huntsman president and CEO Peter R. Huntsman stated, “We are pleased to have reached this agreement with Hexion and Apollo. Receipt of these proceeds will enhance the strength of Huntsman’s balance sheet and better position our company to prosper during the current turbulence in the global economy.  Additionally, our associates, customers and suppliers can now put the uncertainty concerning the outcome of the merger with Hexion behind them.”

Leon Black, chairman of Apollo, added, "We are happy to be resolving this situation in the best interest of our investors. It puts to an end the six month disagreement and distraction between our companies.  As the majority stakeholder in Hexion and now an investor in Huntsman, we look forward to both companies traversing this economic cycle and prospering."

The settlement with Hexion, Apollo and its affiliates does not resolve the claims asserted by Huntsman against Credit Suisse and Deutsche Bank, which claims that the banks conspired with Apollo and tortiously interfered with Huntsman's prior merger agreement with Basell, as well as with the later merger agreement with Hexion. 

Separately, Apollo announced that an affiliate of Apollo has agreed to make a $200 million investment in Hexion’s parent company, the proceeds of which will be used by Hexion for general business purposes. “We are pleased that this matter has been resolved,” said Craig O. Morrison, chairman and CEO of Hexion. “We appreciate Apollo’s ongoing support of Hexion. 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. We are well-positioned to compete globally as a stand-alone company, and we look forward to focusing fully on serving our customers and growing our business.”