Legal News

Huntsman Deal: Apollo Could Face Huge Damages as Banks Walk

By Dan Slater

(AP/Jennifer Graylock)

Private equity firm Apollo has found itself in an interesting bind: It must consummate its $6.5 billion acquisition of Huntsman Corp., yet it no longer has the backing of the banks that originally agreed to fund the deal.

Here’s the story from our own Peter Lattman, and here’s how Apollo got into this mess. In July 2007, as the credit crunch was being born, Hexion — an Apollo-owned chemicals company based in Ohio — struck a deal to buy Huntsman. Then, a year later, Apollo sued Huntsman, asking the Delaware Court of Chancery to kill the transaction because a combined Hexion-Huntsman would be insolvent, which, Apollo claimed, would prevent the financing banks (Credit Suisse and Deutsche) from lending $15.35 billion to fund the deal. In September, Vice Chancellor Stephen Lamb refused to let Apollo — whose founder, Leon Black, is pictured above — walk away.

The latest: Last week, a New York State judge denied a request by Hexion to extend the banks’ lending commitment, meaning Apollo no longer has the backing of Credit Suisse and Deutsche. Meanwhile, the firm is under a separate court order in Delaware that admonishes it to use its best efforts to close the deal. If Apollo can’t close, it faces potentially billions of dollars of damage claims by Huntsman in both Delaware and Texas.

Judge Eileen Bransten (pictured, right) ruled that Credit Suisse and Deutsche didn’t have to extend the length of their funding agreement, which was originally struck in July 2007, because it contractually expired Nov. 1. She pointed out that Hexion spent two recent months in Delaware trying to get out of the merger itself. Had it not spent that time, “it would not be where they are today, which is on the eve of the commitment letter expiring,” she said.

For more on how the troubled debt markets are hammering the buyout industry, click here for today’s NYT front-pager, which discusses Apollo’s troubled investments in Linens ‘n Things and Harrah’s Entertainment.

Full post as published by Law Blog - WSJ.com on November 03, 2008 (boomark / email).