Hedge Funds Back Apollo-Huntsman Merger

Sep 3 2008 | 10:45am ET

A group of hedge funds has stepped up to help finance Apollo Management’s buyout of chemical giant Huntsman Corp. There may be just one problem: It’s not clear Apollo wants the help.

The offer, which involves Huntsman shareholders, including members of the company’s founding family, providing $500 million to help finance the merger, came last week. According to The Wall Street Journal, Citadel Investment Group, D.E. Shaw & Co., MatlinPatterson Global Advisors and Pentwater Capital Management are backing the complicated initiative, which would earn them contingent value rights in Huntsman that could shave almost 10% off Apollo’s purchase price.

Huntsman is enthusiastic about the deal, saying it was “gratified by the confidence” the proposal shows in the merger between itself and Hexion Specialty Chemicals, an Apollo portfolio company. But Apollo, which is trying to get out of the deal by arguing that a Hexion-Huntsman tie-up would be insolvent, doesn’t seem to think the new financing makes much difference.

The hedge fund plan “does not come close to making the combined company solvent,” Hexion said last week.

Huntsman and Apollo are set to face off in a Delaware courtroom next week, with Apollo arguing that Huntsman’s poor financials constitute a “material adverse effect” on it, allowing the private equity firm to walk away from the deal.

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