The private equity dance always looks the same now. In 2006 or early 2007, when credit was plentiful and the stock market was up 100% a year, funds would offer buy-outs of public companies at huge premiums. As the credit markets fell apart, the private equity people would come up with excuses to walk on the deals. Often, the target companies felt they had no recourse and ran away like whipped dogs. Some challenged the matters in court.
Apollo Management, run by a former Drexel Burnham executive, an associate of the great Mike Milken, has decided to skip on a deal it set to buy Huntsman (HUN).
Apollo set the price for Huntsman at $6.5 billion. Now the fund says that Huntsman’s financial fortunes have gotten worse over the last several months. Because of rising commodities prices, that conclusion about Huntman’s numbers is largely true.
The regular exit route for buy-out firms from the deals which they set a year or more ago is based on their feeling that the deals were iron-clad when things were good, but mutable when times were tough.
Relativism in business is not new. What makes money is the beacon for what it right. The courts will decide the Huntsman case. If there is any justice, Apollo will be forced to keep its word. Public company shareholders can be suckers, so someone has to look out for their interests.
Douglas A. McIntyre
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