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Huntsman/Hexion Failed Merger Litigation Successfully Concluded for Banks

On June 23, 2009, on behalf of Credit Suisse Securities (USA) LLC (“Credit Suisse”) and Deutsche Bank Securities Inc. (“Deutsche Bank”), Cravath has successfully concluded litigation over the failed merger between Huntsman Corporation (“Huntsman”) and Hexion Specialty Chemicals, Inc. (“Hexion”). In this final chapter of the extensive litigation over the merger, Huntsman sued Credit Suisse and Deutsche Bank in state court in Conroe, Texas, claiming, among other things, that the banks had engaged in fraud and tortiously interfered with the merger agreement. Six days into a jury trial, Huntsman settled its claims.

The terms of the settlement are far below the amounts Huntsman had sought at trial. Huntsman had asked the Texas jury to award $4.65 billion in compensatory damages plus another $9.3 billion in punitive damages. Under the terms of the settlement, Credit Suisse and Deutsche Bank will each pay $316 million in cash. In addition, the two banks will each provide $550 million of senior debt financing to Huntsman International LLC, a subsidiary of Huntsman, to be repaid over seven years with interest.

During the past twelve months of litigation on this matter, the Firm’s efforts included massive document production in three different courts, expedited and intensive deposition programs in three different litigations and hotly contested TROs and preliminary injunctions in both Texas and New York. The Cravath team’s victories leading up to this successful settlement include:

  • Successfully kept the banks from getting joined in litigation brought by Apollo Management LP (“Apollo”) and Hexion against Huntsman in Delaware Chancery Court;
  • Defeated the request in Huntsman’s temporary injunction motion in Texas that the Texas Court order the banks to fund the merger;
  • Defeated the request in Huntsman’s temporary injunction motion in Texas that the Texas Court extend the banks’ commitment letter past its November 1, 2008, expiration date;
  • Defeated (as a non-party) the joint motion of Hexion and Huntsman in Delaware that the Chancery Court extend the banks’ commitment letter past its expiration date;
  • Defeated Hexion’s motions in New York Supreme Court for a TRO and then a preliminary injunction seeking either to compel specific performance of the financing commitment or an extension of the commitment letter, with the New York Court finding no likelihood of success on Hexion’s claim that the banks breached their commitment letter by not funding because of insolvency concerns; the commitment letter expired, and Hexion subsequently dismissed all its claims against the banks with prejudice;
  • Persuaded the Texas Court to strike Huntsman’s $8 billion unjust enrichment claim (based on the estimated losses the banks avoided by not funding under the commitment letter) and got dismissed before trial Huntsman’s claims of tortious interference with a prior merger agreement Huntsman had signed with Basell AF, statutory fraud, negligence and conspiracy with other financial institutions;
  • Prevented Huntsman from amending its petition on the eve of trial to add a claim that the banks committed a felony, which would have made each bank jointly and severally liable for all damages;
  • Successfully argued that Apollo and Hexion be named as responsible third parties, to be assigned a percentage of any damages award by the jury;
  • Won a series of in limine motions and Daubert/Robinson challenges to expert witnesses on the eve of trial, cutting back on Huntsman’s planned presentation of evidence; and
  • Presented a successful opening statement and a successful cross-examination (by the Firm’s Texas co-counsel, Irv Terrell of Baker Botts) of Huntsman’s key opening witness, Peter Huntsman, demonstrating that the trial would be hard-fought and was too close to call, which helped set the dynamics for a successful settlement.

Cravath partner Richard W. Clary acted as lead counsel in the litigation in Texas, New York and Delaware. The litigation team that contributed tremendous effort to this outcome was also led by partners Julie A. North, Robert H. Baron, Gary A. Bornstein, Douglas D. Broadwater and Michael T. Reynolds. Partners Paul H. Zumbro, Kris F. Heinzelman, Michael S. Goldman and LizabethAnn R. Eisen contributed efforts on the deal side of this matter and provided on-going consultation and support as the litigation proceeded. Mr. Zumbro was also involved in negotiating and documenting the debt facilities.