CHEMICAL REACTION
Billionaire Leon Black’s experiment with the chemical industry seems to have blown up in his face.
After months of fighting, the co-founder of private-equity giant Apollo Management was handed a stinging defeat in a Delaware court Monday night that could end up costing him dearly.
Delaware Chancery Court Judge Stephen Lamb ruled that Apollo-owned Hexion Specialty Chemicals must complete its takeover of rival chemical maker Huntsman Corp. despite Black’s claim the combined company would be insolvent and that a falloff in Huntsman’s business nullified the agreement.
The battle has been particularly nasty, with Huntsman chief Peter Huntsman and his father Jon, a devout Mormon who is chairman of the firm, having fired a number of personal shots at both Black and Apollo co-founder Josh Harris.
“We have claimed all along that Apollo would resort to any means necessary to break a legal and binding contract,” Jon Huntsman said yesterday in a statement. “Apollo was dishonest, untruthful and lost the case.”
Jon, 71 – whose son Jon Jr. is the governor of Utah – has blasted private-equity firms that walk away from deals as “dishonest.” He particularly derides Black and Harris for backing out of the deal, after having reportedly flown them to his home in Utah for handshakes to finalize the deal.
The ruling means that Apollo has to convince its lenders at Deutsche Bank and Credit Suisse to pony up about $6.5 billion in debt to finance the takeover – something the banks are likely to refuse to do if the combined company is expected to be insolvent.
“I highly doubt that the banks will fund this deal without a fight,” said one Huntsman shareholder.
If Hexion can’t complete the takeover, the court said Hunstman can seek as much as $3 billion in damages from Hexion, which would drive Hexion into bankruptcy and wipe out Apollo’s $1 billion equity investment in the company.
What’s more, Huntsman is also suing Black and Harris for fraud in Texas state court in conjunction with the deal.
Legal experts say the Delaware ruling likely gives Huntsman enough evidence to hold a jury trial, which could make Black and Harris personally liable for over $2 billion in damages if they lose the case.
Texas District Judge Fred Edwards has already hinted he’s sympathetic to Huntsman. Yesterday, he granted the company a temporary restraining order against Deutsche and Credit Suisse that stops them from delaying or preventing the financing until a further hearing is held.
Huntsman shares soared more than 71 percent yesterday to close at $12.60 – still a far cry from the $28 a share Hexion agreed to pay over a year ago.
“Although Hexion has the right to appeal, Lamb’s decision is virtually bulletproof,” said Antony Page, a law professor at Indiana University School of Law.
Hexion officials have said they are “disappointed” in the decision and are “reviewing their options.”
One option, according to analysts, is for Apollo to inject several hundred million dollars of additional equity into the deal, which would lessen the pain for the banks, while at the same time negotiating a price cut from Huntsman.
But that outcome would mean getting all the parties involved – including Deutsche and Credit Suisse, which could lose billions on the debt – to agree to a settlement.
“At this point all parties, including the banks, should take a deep breath and negotiate a deal at a price somewhat lower than $28,” said Indiana University’s Page. zachery.kouwe@nypost.com