HUN Msg #1023, 6/19/2009, 9:07:00 AM
Investor Village Forum, By: StrawtoGold

The week in review

I wrote a very long analysis of the week and when I sent it, it was lost so this will be an abbreviated version. As to FRPTs comments I do not believe the banks approach to HUN was to prevent a merger I believe at that time they knew they could make multi-millions syndicating the deal and mergers as big as this don't come up very often.

As for the week in review:

Good week for HUN.  In the first inning, HUN came out swinging for the fences and hit a few homers:
Hit a few singles describing the deal - firm contract with no outs, success in negotiating the right to submit a solvency certificate at closing, history of the auction, etc. Hit a grand slam with the e-mails.  Very damaging.  The visiting team made some costly errors that cost them some runs. HUN rolled the dice and lost will cost them.

End of the first inning, HUN 5 Banks 1

Second inning testimony.  It is all about sincerity and perception. The Huntsman family there at the trial in front of the jurors, the bankers hiding on the other side of the ocean, unwilling to have the jurors look into their eyes. Towery's testimony only confirmed the very damaging e-mail testimony. The banks credibility is shot. Peter Huntsman appears to have come across with honesty and sincerity.
HUN hit some singles on the credibility battle and Towery gave up a 2 run error when he bobbled the line drive hit by the HUN attorneys.

End of the second inning, HUN 7 Banks 1

Not to get overconfident, remember the visitors still have the heart of their order coming to the plate and surely those guys will score a bunch of runs. The question is whether the visitors are so far behind, they can't catch up. To this broadcaster, the home team is looking good and the home town fans are eating it up.

Banks strategy options: (all my opinion)

1) Settle at a higher figure now - $3.5 - 4.0 Billion (Towery cost them at least $0.5 Billion yesterday)
2) Take your chances with the jury and punitive full award plus $3 Billion punitives to show the visitors they can't come into our town and expect to beat the hometown boys.
3) Have the judge reverse on the law award, no way. Punitives, doubtful
4) Reverse on appeal I don't believe the judge or HUN will allow reversible rulings into the trial (HUN may be now playing in a prevent appeal defensive mode). A punitive award would open the door to present the case to the Appeals Court. Still don't believe the visiting team would win in this rematch on a neutral playing field.
5) Get a merger done still makes the most sense.
6) Lose and go after Apollo looking more and more like the bank’s strategy.

Cost to the banks

Highest cost go to jury and appeals court and lose and open up the floodgates for a long road schedule with other home teams.  Possible least cost go to jury and win against Apollo but you still will have all those games on the road for the next several years.  Settle yes, you will lose cash but probably shorten the upcoming road schedule.  Least costly, acquire the home team even if you need to put in a few billions in equity. Get a deal done with anyone.

Lastly, and the award for best closing line by an attorney should go to the HUN attorneys:

Ladies and gentlemen of the jury, in 2007, the banks saw a major merger going down between HUN and Bassell.  The banks saw an opportunity to earn multi-millions in syndication fees if they could convince a company to outbid HUN. They worked with Hexion to do exactly that. The problem for the banks was that between the time they committed to HUN to do the deal and closing, the syndication market collapsed and the banks couldn't earn those lucrative fees. Knowing that, they decided to kill the deal and take their chances in court. Their own bankers said, Let them sue us. What we now know is that the banks rolled the dice and lost.

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Comments from Grones on Investor Village Forum

The banks own employees, by their testimony, are making the solvency issue moot. Without the banks bringing in their own people to testify, I don't see how the banks can overcome what we have heard.
For the life of me, I can’t figure out the strategy of the banks. They know they have lost the jury, they know the e-mails and depos of the bank employees were in clear violation of the contract, and they know the solvency thing has lost in every trial and won’t change the minds of the jury.

What we don’t know of course if whether the banks have made a significant settlement offer to HUN and it has been rejected because HUN is willing to wait 5 more weeks for a huge award from the jury.
My best guess, based on what we have heard so far, is that the banks are trying to build a case against Apollo and/or string out paying HUN through the appeals process. While Apollo is off the hook because of the HUN indemnification, Apollo stands to lose a lot of equity value if HUN has to give back billions to the banks. Of course we don’t know the terms of the convertible preferred. Is there a clause prohibiting Apollo from selling their common stock upon conversion for a fixed period of time? One would certainly hope so.  Not uncommon.

IMO, for every reason, HUN has to be insulating Apollo.  After all, Hexion was sitting at the table waiting to close. I am sure by the end of the trial HUN’s attorneys will try to have the jury see Hexion and HUN as victims of the machinations of the banks, if HUN’s attorneys can successfully distance Hexion from the banks. Of course, the Apollo settlement with HUN does indicate complicity.