Apollo offers up $540 million for Huntsman, Hexion deal; Walgreens withdraws; banks talk, shares fall

By Aaron Hochman-Zimmerman

New York, Oct. 9 - The market saw few successes on Thursday as the Dow Jones Industrial Average held on for dear life just tight enough to avoid another record-setting loss.

From deal-land, Huntsman Corp. was a rare exception, its stock performing well after Apollo Management LP moved to comply with the Delaware Chancery Court by putting up $540 million to seal the deal between Huntsman and Hexion Specialty Chemicals, Inc.

Elsewhere, Walgreen Co. withdrew its convoluted bid for Longs Drug Stores Corp., clearing the way for a completed deal with CVS Caremark Corp.

In finance, the banks embroiled in deals or deal talk were hurt Thursday, although regional bank National City Corp. made an effort to stay in the green earlier in the day.

Wachovia Corp. led the way down for the major banks as Citigroup Inc. and Wells Fargo & Co. discussed how to divide up the prize.

Also, Luminus Management LLC withdrew its bid for Calgary, Alta.-based utility TransAlta Corp., but said it may be back someday with another offer.

Meanwhile, the Dow was socked for another 678.91, or 7.33%, to end at 8,579.19, while the Nasdaq Composite Index escaped with only a 95.21, or 5.47%, loss to finish at 1,645.12.

The S&P 500 was squeezed for 75.02, or 7.62%, to close at 909.92.

Apollo makes show of $540 million

Apollo Management was willing enough to appear anxious for a completed merger between Huntsman and Hexion. The private equity firm offered up $540 million in order to keep within the lines of the court's finding, which requires it to take all reasonable action to see the deal through.

"The new capital contribution, not required by any current contractual obligation of Hexion or Apollo, assists Hexion in addressing the issues raised in the decision last week by the Delaware Chancery Court in the pending merger," Hexion said in a press release.

Apollo, the owner of Hexion Specialty Chemicals, saw its company ordered to abide by its $6.5 billion deal to buy Huntsman.

The deal is far from settled at the $28.00 per share price, said ICAP Equities merger arbitrage analyst Sachin Shah.

"I think there's going to be a repricing," he said. "That's what the market is expecting also."

The banks, he said, are not interested in financing a deal at $28.00 per share and are holding up the process.

The credit crunch may be the greatest hurdle the deal faces, but the broad market downturn can be part of a silver lining for Huntsman and Hexion, Shah said.

When the deal was penned, oil traded near $135.00 per barrel; on Thursday crude was seen trading near $85.00 per barrel.

"I could imagine that there's going to be a lot of positive tailwinds for both entities," he said regarding the $50.00 drop in the price of oil.

Still, the repricing is the reason that Huntsman is not trading closer to the offer price.

Rather than Thursday's 28% gains, "it could easily be up 100% if they felt that this was an indication that they would close at $28.00 per share," he said.

Shares of Huntsman (NYSE: HUN) jumped $2.56, or 28.19%, to end at $11.64.

End of a long shot

Walgreens chairman and chief executive officer Jeffrey Rein sent a letter to Longs Drug ending the $75.00 per share bid that Walgreens had hoped would wrest Longs away from CVS.

"While we believe we made a compelling proposal for Longs, we do not believe it would be in the best interests of Walgreens shareholders, customers or employees to allow this situation to remain unresolved for an extended period of time," Rein said on Wednesday evening.

"Walgreens has a strong balance sheet and robust cash flow. We will continue to focus on strategic initiatives that will maximize value for our shareholders," he added.

Walgreens' $75.00-per-share offer brought a higher value than CVS' $71.50-per-share offer, but Longs rejected Walgreens on Sept. 23 citing anti-competitive complications and a long delay in the estimated completion of the deal.

"The Walgreens offer was messier," SunTrust Robinson Humphrey analyst David Magee said.

Although it was clearly the higher offer, there were "a lot more hurdles," Magee said regarding the geographic overlap and regulatory issues.

CVS' offer already had the regulatory and financing pins knocked down.

The expiration for CVS' tender offer for Longs' shares is Oct. 15, and Magee expects much greater participation than CVS' last attempt, which came on the heels of the Walgreens offer.

"People were just waiting to see what happened" during the last tender, he said.

The union of Longs and CVS seems logical, Magee said, adding that the two are a good geographical match and CVS has the experience and balance sheet to make the deal happen.

Shares of Longs Drug Stores (NYSE: LDG) dipped $2.75, or 3.84%, to $68.93.

Shares of Walgreens (NYSE: WAG) fell $0.90, or 3.44%, to $25.38.

Shares of CVS Caremark (NYSE: CVS) inched up $0.54, or 1.81%, to $30.38.

Talks leave banks battered

For the banks, Wachovia was slammed as stories speculated over reasons why negotiations between Citigroup and Wells Fargo were thought to be delayed.

Reports suggested the two were working out a deal that would likely leave Wells Fargo with 80% of Wachovia and Citigroup with the remaining 20%.

Late Thursday, Citigroup announced that it ended its discussions with Wells Fargo without reaching an agreement.

Meanwhile, National City was, at one point, one of the day's big gainers on a report from the New York Times that reiterated rumors of a sale for the Cleveland-based bank.

The report suggested PNC Financial Services Group Inc. and Canada's Bank of Nova Scotia as possible buyers.

A trader recently told Prospect News that U.S. Bancorp should be thought of as a potential buyer as well.

Shares of Wachovia (NYSE: WB) sank $1.46, or 28.85%, to $3.60.

Shares of Wells Fargo (NYSE: WFC) lost $4.65, or 14.58%, to end at $27.25.

Shares of Citigroup (NYSE: C) gave up $1.47, or 10.21%, to finish at $12.93.

Shares of National City (NYSE: NCC) ended lower by $0.08, or 3.59%, at $2.15.

Luminus ends TransAlta transaction

Luminus Management also withdrew its offer of C$39.00 per share for TransAlta on Tuesday, according to a Thursday filing with the Securities and Exchange Commission.

Luminus already owns a 9% stake in TransAlta and may regroup and re-attack with another bid in the future, a market source said.

Shares of TransAlta (NYSE: TAC) fell $1.86, or 8.77%, to $19.36.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.