Hexion deal to buy Huntsman on verge of collapse : US Business

By Euan Rocha and Megan Davies

NEW YORK (Reuters) - The multibillion-dollar leveraged buyout of U.S. chemical maker Huntsman Corp was on the verge of collapse on Wednesday after private equity firm Apollo Management said bank financing for the deal was in jeopardy due to Huntsman's current financial condition.

Apollo's Hexion Specialty Chemicals unit filed suit against Huntsman seeking to limit its liability in the event the $6.5 billion deal falls apart. Last year, Hexion trumped an offer from rival Basell in a bid to acquire Huntsman.

This is the latest leveraged buyout to face collapse and one of the few deals left to close since the private equity boom ended in the summer of 2007.

Hexion said the deal is no longer viable because of Huntsman's increased net debt and its lower-than-expected earnings.

Investors have been wary about the likelihood of the deal closing and shares of Huntsman have traded at a sharp discount to Hexion's $28 a share offer price over the last few months. Shares of Huntsman fell more than 30 percent to $13.90 in after-hours trading.

Hexion said it believes that closing the deal on the basis of the capital structure agreed to with Huntsman would render the combined company insolvent.

It also added that it does not believe the banks will provide the debt financing for the merger contemplated by their commitment letters.

However, Hexion added that it will continue to use its reasonable best efforts to close the transaction, but it does not believe that alternate financing will be available.

Deutsche Bank AG and Credit Suisse Group AG are the banks that are financing the deal, according to regulatory filings.

Spokesmen for Deutsche Bank and Credit Suisse declined to comment, while a spokesman for Huntsman was not available for comment.

Besides this deal, just a handful of LBOs from a year ago are yet to close -- the $34.1 billion takeover of BCE Inc and the $6.1 billion acquisition of Penn National Gaming Inc are still on the table -- and there are questions over both of those happening.

The fate of BCE is in the hands of Canada's top court, which delayed a ruling on Tuesday on whether to approve the buyout. Bondholders want it blocked on the grounds it would saddle BCE with too much debt.

Meanwhile, Penn said on Friday the needed regulatory approvals would not be obtained in time for a June 15 deadline, so it extended the date to Oct 13.

The cost of financing LBOs has risen significantly after defaults on subprime loans caused turmoil in the credit and equity markets. Other collapsed deals include the $1.8 billion sale of mortgage and vehicle fleet company PHH Corp and buyouts of equipment renter United Rentals Inc and audio equipment maker Harman International Industries Inc .

In May, the $1.3 billion buyout of Cumulus Media Inc collapsed as the investor group set to buy the radio broadcaster failed to agree on the transaction terms.

(Reporting by Euan Rocha and Megan Davies, editing by Mark Porter and Phil Berlowitz)

(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.