Huntsman deal to kill private equity?

Posted Jun 24th 2009 9:30AM by Tom Taulli
Filed under: Private Equity

The complicated legal fight over the implosion of the private equity buyout of Huntsman (NYSE: HUN) has been settled. The firm was able to get $632 million in cash and $1.1 billion in financing from Credit Suisse (NYSE: CS) and Deutsche Bank (NYSE: DB).

Basically, Huntsman claimed that these financial firms failed to uphold their responsibilities in backing the takeover from Hexion Specialty Chemicals, which was struck in July 2007 at $28 per share. Now, Huntsman is trading at $5.92, primarily because of the plunge in the global chemicals sector.

In all, the company has netted $2.7 billion in settlement dollars (you see, Huntsman also sued the private equity sponsor on the transaction, Apollo). But, interestingly enough, these amounts pale in comparison to what the losses could have been for Credit Suisse, Deutsche Bank and Apollo.

Yet, in light of all this, it's unlikely that Huntsman will ever be able to pull off a private equity deal. No doubt, the firm has demonstrated its extreme willingness to litigate, right?

So, what does this mean for other deals? For the most part, it will be a stark example of the dangers of providing buyout financing. Such deals can be risky and deserve a good amount of due diligence.

In other words, lenders will probably continue to be restrained on buyout transactions. There will also be more protections in buyout contracts – to deal with adverse market conditions. Then again, shouldn't this prudence be a part of mega deals, anyway?

Tom Taulli is the author of various books, including The Complete M&A Handbook and the founder of BizEquity, a free online business valuation tool for small businesses.

Tags: cs, db, featured, hun, Huntsman, inthenews