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NEW YORK (AP) -- Chemicals maker Huntsman Corp. has ended its $6.5 billion agreement to be taken private by Hexion Specialty Chemicals Inc. and agreed to a $1 billion legal settlement with Hexion's private-equity owner, Apollo Global Management LP.
The deal, announced late Sunday, ends months of litigation between the companies, whose tie-up unraveled amid the global credit crisis and sparked a string of lawsuits.
Apollo-owned Hexion agreed to buy Salt Lake City-based Huntsman in July 2007 for $6.5 billion but then tried to back out, citing Huntsman's deteriorating finances. A Delaware judge ordered Hexion to keep the buyout on track, essentially dismissing pleas the combined company would not be solvent.
But Credit Suisse and Deutsche Bank, which had been slated to fund the deal, backed away in October as financial markets spiraled downward and credit markets dried up. A New York judge declined to extend a financing agreement, and Huntsman then filed suit against the banks.
The $1 billion settlement includes a $325 million breakup fee to be paid as provided in the merger agreement -- which Hexion expects will be funded by Credit Suisse and Deutsche Bank -- and $425 million cash payments made by Apollo.
Huntsman also will receive another $250 million in exchange for 10-year convertible notes which can be repaid in cash when they mature or in common stock. Huntsman said it expects to receive at least $500 million before the end of 2008, with the rest paid by March 31.
Shares of Huntsman fell $2.06, or 35 percent, to $3.79 just after the opening bell. The stock has fallen about 79 percent since the deal was first announced, and the drop Monday morning appeared to catch some Wall Street watchers off guard.
"We expect Huntsman shares to react positively to the news, though upside remains limited until the company updates operational trends given the current soft demand environment," Jefferies & Co. analyst Laurence Alexander said in a note to investors.
Huntsman President and Chief Executive Peter R. Huntsman said the settlement will improve his company's balance sheet and "better position our company to prosper during the current turbulence in the global economy."
Leon Black, Apollo's chairman, said the agreement put an end to months of uncertainty.
"We are happy to be resolving this situation in the best interest of our investors," he said in a statement. "It puts to an end the six-month disagreement and distraction between our companies. As the majority stakeholder in Hexion and now an investor in Huntsman, we look forward to both companies traversing this economic cycle and prospering."
Hexion Chairman and Chief Executive Craig Morrison said the investment in Huntsman will help him and his company "to solidify our leadership position in the marketplace" and "remain a strong competitor in a difficult environment."
But Huntsman said it intends to go forward with a lawsuit against Credit Suisse and Deutsche Bank, saying Apollo's settlement doesn't "resolve the claims asserted by Huntsman against the banks" in its original claim.
"This is a significant settlement for our company and its shareholders, but we must continue to pursue our multibillion-dollar Texas case against Credit Suisse and Deutsche Bank for the harm they have caused," company founder Jon Huntsman said in a statement. "We remain focused on preparing for our May jury trial against the banks."
Huntsman claims the Swiss and German banks "conspired with Apollo and tortuously interfered with Huntsman's prior merger agreement."
Hexion filed its own lawsuit against Deutsche Bank and Credit Suisse in October regarding the bank's refusal to fund the buyout. That trial was slated to start in early 2009. A Hexion representative was not immediately available to comment on the lawsuit's status.
Credit Suisse spokesman Marc Dosch in Zurich said the bank had no comment on the case. A Deutsche Bank representative in New York was not immediately available for comment.
(Copyright 2008 by The Associated Press. All Rights Reserved.)