Huntsman gets $1.7B settlement

0 Comments | Deseret News (Salt Lake City), Jun 24, 2009 | by Laura Hancock Deseret News

Huntsman Corp. said Tuesday that two investment banks will pay it a $1.7 billion settlement over its accusation that they schemed to scuttle a $6.5 billion buyout of the chemicals maker last year.

The agreement with Switzerland's Credit Suisse and Germany's Deutsche Bank ends a trial in a Texas state court on fraud charges. Huntsman -- based in Salt Lake City and operated from The Woodlands, Texas, in suburban Houston -- had been seeking up to $4.6 billion in compensatory damages.

The parties had been in court as recently as Thursday. Peter Huntsman, Huntsman Corp.'s president and chief executive, said the parties had been in discussions over an out-of-court settlement for about a month.

The settlement will give Huntsman Corp. a cash infusion and access to financing at a time when chemical producers are struggling with weak sales linked to the recession.

"This is the biggest change to our balance sheet we've ever had in the history of company," Huntsman told the Deseret News.

The banks will pay Huntsman Corp. $620 million in cash and provide $500 million in senior-debt financing, $600 million in unsecured-note financing and $12 million in legal costs. "This will allow us to pay down more expensive debt," because the interest rates are cheaper, Huntsman said.

The company received the cash Tuesday. The money for the settlement will be split evenly between the banks. The loans will save Huntsman Corp. money because the interest rate is lower and will give the company more liquidity, he said.

The money will help the company pay dividends to shareholders. Shareholders can expect a dividend of 40 cents per share this year, the same as they received last year.

"That's an 8 percent dividend, which in today's market, that's extremely rich," Huntsman said.

Although Huntsman Corp. had sued the banks for more than $4 billion, Huntsman said the settlement was favorable to the company since it was a risk to ask for a large settlement in front of judges in Texas, who tend to be conservative-leaning. Even if Huntsman Corp. had won the lawsuit, "you don't get a check for $4 billion in victory," he said, because parties tend to appeal. "It takes years and years."

Huntsman claimed the banks worked behind the scenes to renegotiate a funding agreement with Hexion Specialty Chemicals' owner, the private equity firm Apollo Management.

Hexion had agreed to buy Huntsman Corp. in July 2007 for $6.5 billion, with Credit Suisse and Deutsche Bank providing the financing. Hexion began backpedaling last summer, and Apollo pushed in court to have the agreement canceled, citing Huntsman Corp.'s deteriorating finances.

A Delaware judge ordered Apollo to try to close the deal anyway, but Credit Suisse and Deutsche bank said they wouldn't fund it. The two chemical companies parted ways, and Huntsman Corp. received a $1 billion settlement.

Rattled by recession and falling sales, Huntsman Corp. sued the banks in Texas, citing interference with its business.

The case is among the last few major lawsuits to come to a close, after a frenzy of proposed buyouts collapsed. The value of the targeted companies plummeted as credit markets ground to a halt and the government stepped in to rescue U.S. banking giants.

Legal teams on Wall Street have monitored developments in the Huntsman Corp. case to see if a jury would accept the justification of financial institutions like Credit Suisse and Deutsche Bank for backing out of major financing agreements.

Huntsman noted that with the company's $1 billion settlement with Hexion and Apollo in December, total proceeds exceed $2.7 billion.

In a joint statement, the two banks said even though they "believe strongly in the merits of our case," they felt it was in their best interests to settle.

Huntsman Corp. shares fell 9 cents, or 1.5 percent, to $5.92 in afternoon trading. Deutsche Bank's U.S.-traded shares rose 97 cents, or 1.7 percent, to $56.70, while Credit Suisse shares gained $1.06, or 2.5 percent, to $43.

Joseph Chang, global editor of the New York weekly ICIS Chemical Business, said the price of Huntsman stock decreased because short- term investors were looking for a quick profit in the stock price, betting that Huntsman would get about $400 million more in cash from the banks. When that didn't happen, the investors sold the stock.

"On a positive note, they got $1.1 billion in very attractive loans," Chang said. "They will save a lot in interest expenses."

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