The Deal – Huntsman investment pays off
By David Carey and Lisa Gewirtz, February 11, 2005

Once-troubled Huntsman Corp. completed a $1.6 billion initial public offering Friday, Feb. 11, delivering a hefty profit to a vulture investor that had seized a stake in the chemicals maker when it was near bankruptcy in 2002.

It was the fourth successful IPO exit from a chemicals company by financial sponsors in three months, stoking already-increasing interest in the sector by private equity firms.

Huntsman priced an offering comprising 60.23 million common shares at $23 a share and 5 million convertible preferred shares at $50 a share. The Salt Lake City-based company said it would use its roughly $1.45 billion in net cash proceeds from the sale to shrink its $6.2 billion of debt.

The offering’s big winner, MatlinPatterson Global Advisers LLC, a New York private equity firm and vulture investor, emerged from the IPO with a roughly 35% equity stake valued at about $1.85 billion. That sum includes about $56 million in cash MatlinPatterson will collect selling stock in the IPO.

Exactly how much the firm paid for its stake isn’t spelled out in financial filings. MatlinPatterson would not discuss the IPO or its investment profit. Still, it’s clear MatlinPatterson is earning several times its investment.

Back in 2001 and 2002, MatlinPatterson amassed more than 80% of the nonbank debt of Huntsman and an affiliate, Huntsman Polymers Corp., in secondary-market purchases at deep discounts to par value. Typically, it pays not more than 60% of face value for the distressed debt it buys.

Huntsman, a commodity-chemicals producer, was hammered by a severe downturn in the petrochemicals industry, a strong dollar and an economic slump. Its Ebitda plunged $590 million into the red in 2001.

In September 2002, Jon M. Huntsman, the Salt Lake City industrial magnate who founded Huntsman in the early 1970s, ceded a large minority stake to MatlinPatterson in conjunction with a debt restructuring. The vulture firm swapped its more than $775 million face value of bonds for just under a 50% equity interest. Huntsman and his family kept the rest.

In 2003 MatlinPatterson won control of bankrupt Belgian polymers maker Vantico Group SA in a deal valued at more than $200 million. It merged Vantico and its operating subsidiary, Advanced Materials, into Huntsman.

Since its brush with bankruptcy, Huntsman has rebounded strongly. During the nine months ended Sept. 30, 2004, it reported $617.6 million in Ebitda on revenue of $8.3 billion.

As of early Friday afternoon, Huntsman’s shares were trading at $24.57, up $1.57, or 6.8%, from the issue price. At $24.57 a share, Huntsman had a market value of $5.4 billion.

Huntsman said MatlinPatterson and the Huntsman family would split their joint holding of 143.8 million Huntsman Corp. common shares, which represented 87.3% of Huntsman’s common before the IPO. MatlinPatterson will get about 80.6 million, or 56% of those shares, the IPO prospectus indicated.

The two will sell 4.54 million of their shares in the IPO.

A bank syndicate led by Citigroup Inc. is underwriting the IPO. Other underwriters include Credit Suisse First Boston, Merrill Lynch & Co., Deutsche Bank Securities Inc., J.P. Morgan, Lehman Brothers Inc., UBS Investment Bank, CIBC World Markets Corp., Jefferies & Co., Natexis Bleichroeder Inc., Scotia Capital and WR Hambrecht + Co.

The Huntsman IPO was the latest in a string of offerings that enabled financial sponsors of chemicals companies to exit their investments quickly and profitably.

Nalco Holding Co. went public Nov. 11, 2004, a year after Apollo Management LP, Blackstone Group LP and Goldman Sachs Capital Partners bought the water treatment company in a $4.1 billion leveraged buyout. The three private equity firms earned $450 million in the transaction. They also had recapitalized the company in January 2004 for a $447 million cash dividend. In total, the firms recouped about 90% of the roughly $1 billion in equity they invested.

Later that month, Apollo went public with its portfolio company UAP Holding Corp., realizing a 600% gain on its $120 million investment in the fertilizer and pesticide maker. Apollo sold half of its equity stake in the IPO, worth about $390 million. The firm earlier had earned $92.9 million in a dividend.

And specialty chemicals producer Celanese Corp. raised about $800 million in an IPO Jan. 21 a little more than a year after the Blackstone Group bought it for $3.8 billion in a leveraged buyout. Through the offering and a special dividend, Blackstone was able to quadruple its original $650 million equity investment.

As the offerings suggest, the cyclical chemicals sector is heading into an upswing. Strong earnings and high Ebitda multiples are expected for 2005, 2006 and 2007, and private equity firms are anxious to get in on the action quickly.

“If you miss this market, you will have to wait six or seven years,” said one dealmaker, explaining that PE firms are jockeying to get their IPOs out first before the market becomes glutted with deals.

There were about two dozen leveraged buyouts of chemical companies in 2003 and 2004.

Kohlberg Kravis Roberts & Co.’s portfolio company, Rockwood Specialties Group Inc. is one possible IPO candidate. Apollo has done three leveraged buyouts of chemicals companies that could also be combined for a another buyout.