Lessons for the Twitter board from a billionaire’s fight with Apollo

If only Jon Huntsman was tweeting in 2008. The billionaire industrialist had announced a year earlier the sale of his listed chemicals company, Huntsman Corp, to the private equity titan Apollo Global Management for $10.6bn. 

In June 2008, as the global financial crisis was unfolding, Apollo’s portfolio company, Hexion, ditched the acquisition, citing Huntsman’s sagging financial performance.

The subsequent legal fight would be dramatic and the ruling in the Delaware Court of Chancery on the case would become a seminal precedent in busted deal litigation, of the kind that is relevant again today in the Twitter/Elon Musk battle.

The Huntsman/Apollo inferno was also notable for the Huntsman family’s fury towards Apollo and two of its founders, Leon Black and Josh Harris, whom the Huntsmans believed had acted in exceptionally bad faith. Jon Huntsman told the Wall Street Journal that the pair “should be disgraced”. His son Peter said he found Apollo “absolutely pathetic”. One wonders what caustic memes they would offer on social media if the dispute was happening now.

In 2014, Jon Huntsman published his autobiography. A chapter devoted to the Apollo affair was simply titled, “The Double Cross”. He re-aired his views on Black and Harris: “When the other side intentionally plays dirty, it is infuriating. In its efforts to back out of the deal, Apollo was willing to destroy me, the company and our values.”

Ultimately, Apollo did not buy Huntsman, with the New York firm and its lenders paying almost $3bn in settlement proceeds. At the end of the chapter, Huntsman makes an extraordinary admission that, in hindsight, letting Apollo off the hook worked out for the best. It is a lesson the Twitter board should reflect on as they fine-tune their legal strategy to take on Musk.

Huntsman’s grievance was about not just Apollo walking away, but how the firm did it. In June 2008, Hexion published a press release announcing that it believed that the combined company would be insolvent, that its banks could not provide the bridge financing and therefore it was jumping ship. Huntsman was blindsided and later said the missive had immediately damaged its business.

Apart from the Delaware litigation that sought to enforce the merger agreement, also in June 2008, Huntsman sued Apollo as well Leon Black and Josh Harris personally in Texas state court for fraud and “tortious interference”. The latter is a legal doctrine that had bankrupted the oil company Texaco in the 1980s for its role in a mergers and acquisitions fight.

Later that year, the Delaware trial dug into Apollo’s conduct leading up to the press release. Hexion, with the help of lawyers at Wachtell Lipton — the same firm working with Twitter now — had found a consultancy to render the insolvency opinion after, apparently, Hexion had put its thumb on the scales, the judge suggested.

Apollo’s gambit to this day shocks even jaded Wall Street lawyers and financiers. The Delaware judge was not impressed either. He found that Hexion had “knowingly and intentionally breached numerous of its covenants under that contract”. He could not force Hexion to honour a so-called “specific performance” clause that committed it to finish the deal.

However, the judge did order the Apollo-owned company to honour the other provisions of the contract, most notably pursuing Credit Suisse and Deutsche Bank — Huntsman had sued them separately for walking away — to fund the deal.

By the end of 2008, Apollo settled all litigation it faced with Huntsman for $675mn (another $325mn was funded by the banks). The two banks’ own settlement in 2009 would come in at $1.7bn in the form of cash and cheap loans for Huntsman.

In the years after the resolution of the fight, Wall Street and academics debated who “won” and “lost” between Apollo and Huntsman. As a matter of law, Huntsman had roundly defeated Black and Harris in Delaware. But ultimately, enforcing the merger contract and getting their cash-out payments was too onerous.

Apollo had avoided the possibility of losing all its equity in the Huntsman/Hexion combination. That came at the cost of litigation anguish, reputational tarnish and settlement payments.

Jon Huntsman wrote that even if the company had got its billions in cash, watching it go bankrupt, as it would have done upon closing the Hexion deal, would have been unbearable. Instead, Huntsman shareholders kept the entire company and pocketed almost $3bn in settlement payments. Huntsman shares would rally from $2.30 each in 2009 to $40 by 2022.

Twitter is not a family business. Its diffuse shareholders wish Musk to pay the $54.20 a share that they bargained for. Musk, if forced to close, will take on $13bn of debt amid a softening economy, forcing him into tough business choices that might hurt remaining stakeholders including employees and Twitter’s millions of users.

Huntsman, who died aged 80 in 2018, extended an olive branch to his former adversaries at the end of the Apollo chapter of his book, writing that he had put behind him the “ill will” he once harboured. In what could have been a gracious tweet, Huntsman wrote in the book, “To be totally up front, I still have affection for both Leon and Josh.”

sujeet.indap@ft.com