Business Context and Reporting Period
This Form 8-K Current Report, dated December 15, 2008, covers events occurring on December 13 and 14, 2008, involving Huntsman Corporation and Huntsman International LLC. The filing details the termination of a proposed merger with Hexion Specialty Chemicals, Inc. and the subsequent entry into a settlement agreement to resolve related litigation.
Key Financial Metrics and Agreements
The filing does not report standard operating financial metrics such as revenue, profit, or cash flow for a specific period. Instead, it outlines a significant financial settlement:
- Total Settlement Amount: $1 billion aggregate payment to the Company.
- Cash Component: $425 million in cash from Apollo affiliates.
- Debt Component: $250 million purchase of 7% Convertible Senior Notes by Apollo affiliates.
- Termination Fee: $325 million payable by Hexion under the original Merger Agreement.
- Payment Schedule: At least $500 million due by December 31, 2008; remaining balance due by March 31, 2009.
Material Changes and Litigation Resolution
On December 13, 2008, Huntsman terminated the Merger Agreement dated July 12, 2007. On December 14, 2008, the Company entered into a Settlement Agreement and Release with Hexion, Apollo Global Management, and related parties. This agreement resolves:
- Lawsuits in Delaware Chancery Court.
- Huntsman's lawsuit against Apollo Parties in Montgomery County, Texas.
- Apollo and Hexion's lawsuit against Huntsman in New York.
The settlement does not resolve claims against Credit Suisse and Deutsche Bank (the "Banks"). However, the Company agreed to sever Apollo from the Texas action against the Banks, and Hexion agreed to withdraw its New York claims against the Banks (excluding claims related to a termination facility).
Outlook, Risks, and Unusual Items
Convertible Notes Terms: The $250 million in notes bear 7% interest, payable semi-annually starting July 1, 2009. Interest may be paid in cash or stock. The initial conversion price is $7.86 per share. The notes mature in 10 years and are senior unsecured obligations.
Voting and Standstill: Apollo and related stockholders entered a Voting/Standstill Agreement prohibiting them from owning additional common stock (beyond conversions and interest) and restricting their voting rights until the later of December 31, 2010, or when their holdings drop below 3% of outstanding stock.
Indemnification and Contingencies: Huntsman agreed to indemnify Hexion and Apollo for claims by the Banks related to the Huntsman-Banks litigation, capped at the net recovery Huntsman obtains from the Banks. Additionally, under a separate Letter Agreement, Huntsman agreed to pay Apollo 20% of any recovery from the Banks exceeding $500 million (capped at $425 million), provided the $1 billion settlement is paid in full by April 1, 2009.
Investor Verification Checklist
- Verify the receipt of the initial $500 million payment by December 31, 2008.
- Monitor the status of the ongoing litigation against Credit Suisse and Deutsche Bank in Texas.
- Confirm the issuance and terms of the 7% Convertible Senior Notes.
- Track the payment of the $325 million termination fee by Hexion, contingent on the Termination Facility proceeds.
- Review the Voting/Standstill Agreement restrictions on Apollo's future equity ownership and voting power.