The potential collapse of the $10.6 billion buyout of Huntsman Corp. (NYSE: HUN) is hardly a shock.For one thing, rising oil prices are crushing specialty chemical makers. Another thing is that the deal was announced almost a year ago, an eternity for the closing of a merger and acquisition. The Wall Street Journal argues that private equity shop Apollo Management and its Hexcion Specialty Chemicals Inc. are making a "novel" argument to get out of the deal.
"In a complaint filed in the Delaware Court of Chancery, Hexion said Huntsman's poor financial results -- increased net debt and lower-than-expected earnings -- would render the combined company insolvent," the paper said, adding that legal experts expect Huntsman to file a countersuit. Of course, shares of Salt Lake City-based Huntsman were plunging in premarket action and will likely open much, much lower. CNBC's David Faber points out that the Huntsman deal was "held out" to be the strongest of the LBO deals. That's scary.
In a press release, Huntsman CEO Peter Huntsman said, "These actions appear to be a blatant attempt to deprive our shareholders of the benefits of the Merger Agreement that was agreed to nearly a year ago." The company added that it intends to "vigorously enforce" its rights under the merger agreement and seek to consummate the merger under the agreed upon terms.
Another buyout deal, the $6.1 billion buyout of Penn National Gaming Inc. (NASDAQ: PENN) by Fortress Investment Group and Centerbridge Partners, also remains in flux. The New York Times reported in May that the banks were balking at the original terms of the buyout. Penn National Gaming recently extended the closing date of the merger to allow more time for regulatory approvals.
Private equity firms continue to write big checks. Blackstone Group (NYSE: BX) today agreed to buy Apria Healthcare Group Inc. (NYSE: AHG) for $1.6 billion. Shares of the home healthcare company are surging on the news.
Whether the parties involved in the Huntsman deal will resolve their differences remains to be seen. The squabbles over these deals, including the Clear Channel Communications buyout, underscore how tough the market is for everyone. Companies looking for a big payout will need to look elsewhere
Reader Comments (Page 1 of 1)
6-22-2008 @ 2:44PM
CrossProfit said...
Now that we have seen a restructured CCU deal and the strongest deal, HUN, just fell apart it is time to reconsider. PENN management realizes that without the buyout, shares will trade in the mid 20's based on current market multiples awarded to peers.
PENN management WANTS to work together with the banks and restructure the deal at a lower and more realistic price. The problem isn't PENN. The problem is convincing FIG not to walk and pay the $200M break-up fee.
The latest rumor is that PENN is willing to settle for $53 though rumor has it that at least one bank is not too thrilled about that price as well. If we can get a price that is acceptable to both PENN and the banks, then they will convince FIG to go ahead. It seems to be somewhere in the mid 40's to low 50's. In any event, there would have to be a new shareholder vote.
As of today there is no way of assessing a fair buyout price simply because we do NOT have any information pertaining to new finance arrangements.
WB is still the key.
See PENN's weekly close chart here:
http://www.crossprofit.com/view_symbol.asp?id=28283&content=premium
PENN shares closed at $37.04 on 6/20/08. If there is no confirmation from the BANKS - primarily WB - about a closing, then shares will continue to drift lower. If you are into arbitrage, going long on a half position at around $35 looks good. Currently, do NOT recommend the call options (be patient).
CrossProfit
Disclosure: No current conflicts.
http://www.crossprofit.com