The final outstanding issue from last year’s abortive merger between Huntsman and Apollo Management subsidiary Hexion Specialty Chemicals has been concluded, with an agreed settlement worth a total of $1.7 billion between Huntsman and the two banks whose refusal to finance the deal had finally scuppered it.

Huntsman president and CEO Peter Huntsman described this as “a very successful conclusion to this litigation for the company and all of its stakeholders”. The firm’s cash position, already better than most of its peers, will be substantially improved and it will effectively be borrowing at a very low rate, he said. 

Under the deal, Credit Suisse and Deutsche Bank have agreed to provide $620 million in cash, $500 million in senior secured term loan financing over seven years at the LIBOR rate + 2.25%, $600 million in unsecured note financing over seven years at 5.5% and $12 million for litigation costs. Huntsman had sued them in a Texas state court for fraud and tortious interference.

The company will use this money to repay debt, notably $295 million of senior secured notes due in 2010, boost its liquidity and eliminate its domestic tax net operating loss position. It also intends to continue paying its quarterly dividend to shareholders. Pro forma net debt as of the end of Q1 has been reduced from $3.3 billion to $2.8 billion. 

The merger between Huntsman and Hexion was originally agreed in July 2007, but was repeatedly delayed. In June 2008, as the economy began to slow down, Hexion suddenly tried to abort it, claiming that a combined firm would have been insolvent and that Huntsman had suffered a ‘material adverse effect’ since the agreement.

An increasingly bitter legal dispute went back and forth between courts in Texas and Delaware, though negotiations went on. Finally, the Delaware Court of Chancery ordered Hexion and Apollo to complete the merger. Thereafter, they co-operated with Huntsman and made further capital contributions to expedite matters.

The parties finally reached a $1 billion settlement in December, comprising $425 million in cash, $250 million in exchange for ten-year convertible notes and the $325 million break-up fee stipulated in the merger agreement, which the two banks paid. Huntsman also used this to reduce debt and increase liquidity.

In the interim, however, the two banks tried to back out of financing the deal, arguing that the firm would be insolvent and rejecting the findings of independent analysts to the contrary. Huntsman and Hexion took issue with them at law and several lower courts had already ruled in Huntsman’s favour, making it highly likely that the full case would have gone its way.

Separately, Huntsman has been highly active in India. It has acquired a division of Metrochem Industries that makes intermediates and speciality products for textiles in Baroda and has signed a letter of intent to collaborate with Laffans Petrochemicals on the manufacture of surfactants and amines in India.

The Baroda site employs about 700, including contractors, and has sales of approximately €35.4 million/year. It will be the largest site in the Huntsman Textile Effects division after the main one in Basel and has potential for expansion, especially in speciality dyes and key intermediates needed for dye production of in India.

The site will be integrated with other Textile Effects sites in Qingdao and Panyu in China, plus Mahachai in Thailand. Acquiring it is part of a long-term strategy of moving manufacturing to Asia in order to remain competitive and service a customer industry that is also moving there, said divisional president Paul Hulme. Symptomatic of the trend, Textile Effects moved its headquarters from Basel to Singapore recently.

(And, perhaps symptomatic of the challenges Textile Effects is facing albeit entirely coincidentally, it has recently obtained a judgement in the Mumbai High Court banning Kiri Dyes & Chemcials from selling its Reactive Super Black G, pending a full hearing. This product is said to violate Huntsman’s 2008 Indian patent on Novacron Super Black G and has reportedly been found at several textile mills in Asia.)

“The world of speciality textiles has been changing at a rapid pace, with new materials, technologies and innovations in production around the world,” Hulme added. “Supporting the growth of the Indian textile industry means exploring opportunities beyond the conventional textile chain of fibre to fashion – penetrating the non-woven and technical segments of the textiles industry as well.”

The deal with Laffans, which came after several months of negotiation, involves sharing each other’s “know-how, expertise and resources”. Laffans will take charge of manufacturing and raw material sourcing, while Huntsman will bring its commercial infrastructure, branding, product range, global approvals, technology and manufacturing processes.

The planned technology transfer will include specialty non-ionic surfactants, glycol ethers and amines for a wide range of markets, including agrochemicals, household chemicals, personal care, oil and gas and automotive brake fluids.

Steve Stilliard, vice-president of Huntsman’s Performance Products division in the Asia-Pacific region, called it “a significant step in our strategy to further expand our presence in the critical Asia Pacific region and to build support for our key global customers as they grow in India”.