Huntsman Corp. fell the most ever in New York trading today after buyout firm Apollo Management LP and its Hexion Specialty Chemicals Inc. unit sued to back out of an agreement to acquire the chemical maker for $6.54 billion.
Hexion, which agreed last July to pay $28 a share for the Salt Lake City-based company, said in a complaint filed Wednesday in Delaware Chancery Court that the deal was no longer viable because Huntsman's debt had increased and profits wouldn't meet previous forecasts. Huntsman dropped $8.33, or 40 percent, to $12.53 at 11:47 a.m. in New York Stock Exchange composite trading, the most since it went public three year ago.
The leveraged buyout is one of the biggest uncompleted transactions announced prior to last year's credit-market collapse, which led to a doubling of borrowing costs and a slowing of the U.S. economy. Takeovers of companies including SLM Corp. and Alliance Data Systems Inc. died after buyers backed out or couldn't arrange financing.
"We have always maintained that the Huntsman deal, struck at the peak of the buyout boom, did not make economic sense for the buyer," Hassan Ahmed, a New York-based analyst at HSBC Holdings Plc said today in a report. "The financials of the deal started to look even less appealing over the last few quarters, as raw-material prices have escalated."
Apollo, run by former Drexel Burnham Lambert banker Leon Black, planned to make the acquisition through Hexion, a chemical company it formed through a series of acquisitions. New York-based Apollo and Hexion said in the lawsuit that lenders Credit Suisse Group and Deutsche Bank AG may not finance the deal because the combined company would be insolvent.
Hexion's attempt to cancel the deal violates the merger agreement, Huntsman said today in a statement.