Huntsman Corporation: Is This Deal Real?

Arbitrage is a game for masters as the risks involved are not for your run of the mill investor. Back in August 2007, I wrote an article entitled: Tribune Company: Low Risk, High Reward. There were several follow-up articles as the stock bounced around quite a bit. Those that stayed the course were handsomely rewarded. Is Huntsman (HUN) another Tribune (TRB) situation?

As I mentioned in the previous TRB articles, it is very rare that the market gives the average investor a risk free situation. Not only was TRB a unique situation, the compelling fact that half the deal had already been consummated literally guaranteed the remaining shareholders that the second half would go through. If not, the lawsuits and legal tangling would be so complex that whoever thought they might have gained from half a deal would end up paying it back threefold.

It made no difference whether the deal was financially sound or not. As I pointed out this was the buyers' problem and evidently became more of a bondholder's problem than anyone else's. Again, I will reiterate what I had said in previous articles regarding TRB. If the financing is in place and there is an agreement that determines the financing conditions that can be met with their eyes closed, once half the deal is done, the other half is a done deal as well.

The point I am making is that when it comes to arbitrage short term plays, the safest deals are the ones that have almost everything in place coupled with a partial completion. I say 'almost everything' in place simply because if everything were to be in place there would not be an investment opportunity. The stock would be trading too close to the acquisition price.

There is no question that Apollo is paying top dollar for Huntsman. The mere fact that the competing bid was for $25.25 compared with $28.00 testifies to this fact. What is far more intriguing is that originally Hexion (Apollo group) bid $27.25 and increased its own bid on its own volition to $28.00. The only explanation is that Hexion wanted to insure that there would not be a counter-bid from Basell (private) and at the same time signify that they would make it very costly for anyone else to get near Huntsman.

Perhaps little known is that Apollo attempted to acquire Huntsman (HUN) back in 2005. This too could have played into the decision making process to up the bid as Apollo would not chance a repeat of another white knight (Matlin Patterson) coming along and stealing the crown jewel. Had Apollo doubled their offer in 2005 it would still be less than half of what they are paying today. Bottom line; Apollo wants Huntsman and Huntsman wants to sell.

The overall analysis will be forthcoming in another article once the necessary components have been weighed carefully. There are some obvious similarities between the two (HUN and TRB) yet there are also numerous differences that need to be looked at carefully including the fact that Matlin Patterson cashed out for $24.25. At this stage, no position has been taken by me or associates.

Disclosure: No conflicts

Comments

[Saul Sterman]

Hindsight, I should have shorted this one. Matlin Patterson made the smart move, taking a lower PPS and cashing out. As stated in the article, the price tag was just way too high and my concern over a MAC did materialize.
Hexion may not have to pay a break-up fee. Also the CCU contract had different language regarding the financing so from a legal perspective the two are not the same.

Saul Sterman
CrossProfit