Leon Black, founder of Apollo Management LP, was sued for more than $3 billion by Huntsman Corp., escalating the fight over his attempt to abandon a takeover of the chemicals maker.
Black and Apollo co-founder Joshua Harris engaged in fraud and tortious interference, Huntsman said in a complaint filed today in Texas state court in Montgomery County, north of Houston, where its management is based. The allegations stem from the company's decision in July to accept an offer from Apollo's Hexion Specialty Chemicals Inc. unit over a proposal by Basell Holdings NV.
Hexion sued Huntsman last week to terminate the $6.54 billion deal, saying the combined company would be insolvent. Today's complaint is an unusual step by Huntsman to personally drag Black and Harris into the dispute, the latest court battle over leveraged buyouts that have fallen apart, legal experts said.
``Pulling in the people behind the private equity shell is novel,'' Elizabeth Nowicki, a Tulane University Law School securities professor and a former attorney with the U.S. Securities and Exchange Commission. ``Those people are usually pretty well protected, but they won't sleep well tonight.''
The Apollo-Huntsman deal is one of the biggest uncompleted transactions announced prior to last year's credit-market collapse, which led to a tripling of borrowing costs and a slowing of the U.S. economy.
``Apollo did a deal it wishes it hadn't done and Huntsman really wants to do it,'' said Steve Kaplan, a professor at the University of Chicago Graduate School of Business who studies private equity. ``We're still working through the hangover from last year.''
Huntsman fell 9 cents to $12.75 at 12:23 p.m. in New York Stock Exchange composite trading. The stock dropped a record $8 after Apollo announced its lawsuit on June 19.
`Unfortunate'
``It is unfortunate that Huntsman has chosen to file a baseless lawsuit against Apollo and to personally sue two of its principals,'' Hexion said in an e-mailed statement. Hexion said the suit violates the merger agreement, which calls for any litigation to be filed in Delaware. Huntsman legal headquarters are in Salt Lake City.
Apollo convinced Huntsman to accept its offer for $28 a share instead of a rival bid from Basell, unit of Access Industries Holdings LLC.
``We went with Apollo based on the strength of the contract and the assurances of the principals, particularly Josh Harris,'' Huntsman Chief Executive Officer Peter Huntsman said today in an interview. ``We broke the Access deal and now it's very apparent to us that they didn't have any intention of closing at $28 a share.''
`Novel Strategy'
The legal strategy may open Apollo to paying more than the termination fee dictated by the merger agreement.
``Making tortious interference claims is a novel strategy in the context of big LBO deals that have fallen apart in the past few months,'' Tulane's Nowicki said. ``Huntsman is saying, We were lured away from doing a better deal through fraud.''
Black and Harris founded Apollo in 1990 after working at collapsed investment bank Drexel Burnham Lambert Inc. Apollo pursues investments in distressed assets such as leveraged loans and has undertaken leveraged buyouts of companies including Harrah's Entertainment Inc. and Realogy Corp.
The firm created what became closely held Hexion through a series of chemical industry acquisitions.
Chairman Jon Meade Huntsman, 71, founded Huntsman in 1970 as a container maker, creating Styrofoam ``clamshell'' boxes for McDonald Corp.'s Big Mac hamburgers in 1974. He built the company with debt-financed acquisitions over two decades, gaining products such as laundry detergent ingredients, paint pigment, and polyurethane foam for seat cushions.
Peter Huntsman, 45, the founder's son, took the company public in February 2005, raising $1.45 billion selling common shares for $23 each. The company has since acquired a textile- dye unit and shed businesses that make commodity polymers and chemicals. Utah Governor Jon M. Huntsman Jr. is the founder's other son.
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