June 24, 2009

Apollo Management’s Hexion Specialty Chemicals offered $6 billion to buy chemical company Huntsman (HUN) in July 2007, a bid which would have given stockholders $27.25 a share. Over the course of the next year, as fear about the deal not closing grew, Huntsman (HUN) shares fell below $11 last July. Apollo had begun to back out of the contact and the two banks that were planning to finance the buyout, Credit Suisse (CS) and Deutsche Bank (DB), walked away from the transaction.

Their reluctance was understandable. The economy had fallen apart and earnings at chemical companies were demolished as demand for their products disappeared.But, a deal is a deal, and Huntsman sued. The company’s lawyers had the cunning and skill to have the case initially heard in a local Texas court which immediately put the banks back on their heels. The financial firms should have settled then. Matters were only going to get worse, in part because the case stayed in Texas.