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Anti-Business: Huntsman

Published on June 24, 2009 by in Research

Huntsman (NYSE: HUN) is in the business of making chemicals of some kind. Or rather it was in the business of making chemicals of some kind. Now Huntsman is in the anti-business business wherein they agree to mergers that are so disagreeable, so toxic and so unprofitable that the other side of the merger pays them to go away. The latest anti-business deal Huntsman consummated is one in which Deutsche Bank and Credit Suisse are paying Huntsman cash and providing token cheap financing. This anti-business came about because DB and CS aided and abetted Apollo in weaseling its way out of merging Hexion with Huntsman as agreed in June 2007 which in turn helped DB and CS avoid being forced to provide $15 billion of cheap financing.

By the cold calculations of Wall Street, the settlement was an economic success for the banks. Had they originally provided the $15.4 billion of debt originally committed to the deal, they would have faced billions of dollars in loan losses. Now the direct cost to each bank is just over $300 million, a far more palatable figure.

Recommendation: Huntsman’s cash settlements from their anti-business segment (received from Apollo, DB and CS) in the last twelve months are about as much as their entire current market cap. This doesn’t even factor in the additional value received in these transactions from below market rate financing of convertible and unsecured debt. We like the stock in equal measure to the extent they are able to find new anti-business partners that will allow them to grow their nascent and extremely profitable anti-business segment.

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