Oct. 29 (Bloomberg) -- Hexion Specialty Chemicals Inc., the epoxy maker controlled by private-equity firm Apollo Global Management LLC, may negotiate a lower purchase price for Huntsman Corp. after banks refused to fund their original deal, three people with knowledge of the matter said.

Apollo and Huntsman, based in The Woodlands, Texas, are willing to consider a transaction at a price less than the agreed-upon $28-a-share, according to the people, who declined to be identified because the talks are confidential. The firms haven't yet proposed new terms, the people said. Credit Suisse Group AG and Deutsche Bank AG said this week they wouldn't fund the takeover because the combined companies would be insolvent.

The Huntsman deal, announced in July 2007, has twice landed in court as Apollo, a New York-based buyout firm, and the banks questioned whether the company would be financially viable after the takeover. Buyers of debt used to fund leveraged buyouts abandoned the market last year as the subprime mortgage crisis triggered a global credit contraction.

``Repricing the deal is a definite possibility,'' said Sachin Shah, a merger arbitrage analyst with ICAP Corporates LLC in Jersey City, New Jersey. ``This back and forth between all the parties is not resolving the situation.''

Representatives of the banks, Apollo and Huntsman declined to comment.

Hexion, based in Columbus, Ohio, sued Credit Suisse and Deutsche Bank in New York state court today, seeking to compel the banks to provide the debt they committed for the $6.5 billion transaction.

Combined, Hexion and Huntsman would be among the world's largest specialty-chemical makers, with 21,000 employees, 180 facilities and annual sales exceeding $14 billion, according to Apollo. Hexion is the top producer of adhesives used in plywood.

Huntsman rose 58 cents to $12.86 at 4 p.m. today in New York Stock Exchange composite trading. The stock has dropped 50 percent this year.

To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Jonathan Keehner in New York jkeehner@bloomberg.net

Last Updated: October 29, 2008 18:16 EDT