Huntsman's victory a big win for Utah

A wag once said, "People hate lawyers, but that's because they haven't met investment bankers." Nothing proves the truth of that sentiment more than the recent Delaware Chancery Court's opinion vindicating Huntsman Corporation and its chairman, Jon Huntsman Sr., in his dispute with private-equity tycoon Leon Black and his Apollo Management buyout fund.

In the summer of 2000, Hexion Specialty Chemicals agreed to purchase Huntsman Corporation for $6.5 billion. Hexion is a privately held corporation, 92 percent owned by Apollo Management, which in turn is controlled by Leon Black.

Though Huntsman Corporation had earlier agreed to be purchased by another company, because of Hexion/Apollo's eagerness to acquire Huntsman, the court noted that they "agreed to pay a substantially higher price than the competition and to commit to stringent deal terms, including a no 'financing out...."' If the financing arranged by Hexion/Apollo was not available at the time the deal was to be closed, "the buyer is not excused from performing under the contract." The court further noted that Hexion/Apollo "covenanted that it would (undertake) all actions and do all things 'necessary, proper or advisable' to consummate (the deal)."

After sitting through six days of trial and wading through hundreds of pages of briefs crafted on both sides by the highest paid legal top guns in America, Judge Stephen P. Lamb found "that Hexion/Apollo knowingly and intentionally breached numerous of its covenants" under the agreement. Because of these willful breaches, Judge Lamb granted Huntsman's request specifically enforcing Hexion/Apollo's contractual obligations.

Because of his intimate knowledge of the world of investment banking, buyouts and sophisticated financial arrangements, Judge Lamb is uniquely suited to shed light on this tawdry episode of corporate history. Judge Lamb himself was a partner for 12 years with the law firm Skadden, Arps, Slate, Meagher and Flom. Skadden Arps built a huge and lucrative practice advising hedge funds, leveraged buyout artists, and sophisticated hostile takeover schemes, as well as many of the largest corporations in the world.

Typically, these types of disputes are antiseptic and impersonal corporate wrangling. This case, and a companion case filed by Huntsman Corporation against Apollo Management and its two founders, Leon Black and Josh Harris, illuminates in a very personal way investment bankers' greed that pushes the limits of our free market economy and also pushes to the edge, and sometimes over, violations of ordinarily accepted principles and ethics.

In commenting on the "battle of the billionaires," the Wall Street Journal noted that "walking away from deals was once considered taboo in the buyout business, but the credit crunch changed that. Roughly 20 percent of the leveraged buyouts of U.S. companies in 2007 have been terminated." While there are various excuses for these terminations, "some jilted companies say the explanation is simpler — buyer's remorse." In seeking to hold individuals liable for Apollo's actions, Jon Huntsman Sr. said, "I am outraged that Apollo's founders, Leon Black and Josh Harris, while personally and repeatedly assuring our board of directors and me of their earnestness, pursued a strategy designed to cause us to terminate (our prior deal and) to accept promises they never intended to keep."

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