Dec. 15 (Bloomberg) -- Apollo Management LP, the private- equity firm run by Leon Black, reached an agreement to terminate its acquisition of Huntsman Corp. only after a Huntsman director suggested removing lawyers from the talks.

What followed were three days of negotiations between Black and Jon Huntsman, founder and chairman of the Salt Lake City-based chemical maker. From Dec. 9 through Dec. 11, the two men met alone in a conference room at the New York offices of Vinson & Elkins LLP until Apollo agreed to pay Huntsman $1 billion to end the buyout, according to Chief Executive Officer Peter Huntsman.

“It really was those two that sat down and hammered out a deal,” Peter Huntsman said today in an interview. “The meeting started out quite tense, but by Thursday, we were able to work out a settlement, worked out largely by my father and Leon Black.”

The $6.5 billion Huntsman deal, announced in July 2007, has repeatedly landed in court as Apollo and its banks questioned whether the company would be financially viable after the takeover. Peter Huntsman, who had vowed to hold Apollo to the buyout, said uncertainties about collecting legal awards as well as weak private equity and chemical markets prompted the change.

‘Tremendous Victory’

“A $1 billion settlement in today’s market is a tremendous victory,” Peter Huntsman said in a telephone interview from The Woodlands, Texas, where he is based. “It’s time for us to move on and continue to build the company.”

Apollo will pay Huntsman $425 million in cash and buy $250 million of convertible notes that pay 7 percent annual interest. Apollo’s Hexion Specialty Chemicals unit, which was to combine with Huntsman, said it also expects lenders Credit Suisse AG and Deutsche Bank AG to fund a $325 million breakup fee to Huntsman.

“We are happy to be resolving this situation in the best interest of our investors,” Black, Apollo’s chairman, said yesterday in a statement. “It puts to an end the six-month disagreement and distraction between our companies.”

Huntsman will net about $850 million, because prior net operating losses will negate taxes on about $500 million of the settlement amount, Peter Huntsman said.

Some analysts and investors said the settlement is less than expected and may be a sign that Huntsman is struggling to generate cash.

‘Abrupt Settlement’

“The abrupt and miniscule settlement leads us to believe that Huntsman’s current financial position could be worse than previously thought,” Carl Blake, a New York-based analyst at Gimme Credit, said in an e-mail.

Huntsman fell $2.87, or 49 percent, to $2.98 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest drop since the shares were sold to the public in February 2005. The shares have plunged 88 percent this year.

Some investors owned Huntsman because they expected a court victory, not because they wanted to own a chemical maker, Peter Huntsman said.

“Our earnings will be pretty much in line with our peers,” he said.

JPMorgan Chase & Co. analyst Jeffery J. Zekauskas said Huntsman at $6 a share trades at a premium to peers such as Dow Chemical Co. and Air Products & Chemicals Inc. HSBC Securities analyst Hassan Ahmed reduced his target price for the shares to $3, from $9. Ahmed rates the shares “underweight” and Zekauskas rates them “neutral.” Both are based in New York.

Bank Litigation Continues

The settlement doesn’t resolve litigation between Huntsman and Credit Suisse and Deutsche Bank in Montgomery County, Texas, Huntsman said in the statement. A trial on that lawsuit, which claims that the banks conspired with Apollo and interfered with a prior Huntsman merger agreement, is set to begin on May 11. Apollo has agreed to cooperate with Huntsman in the case, the company said.

Huntsman is pursuing “multiple billions” of dollars in damages from the banks, or the difference between the company’s share price and canceled takeover offers, he said. Apollo agreed to pay $28 a share for Huntsman, outbidding a $25.25 offer from Access Industries LLC’s Basell Holdings unit.

“Apollo reached out to us,” Peter Huntsman said. “The banks have not done that.”

Last week’s meeting between Apollo and Huntsman, which was suggested by Apollo’s lawyers, almost came to a premature end when the two sides offered widely divergent settlement figures, Peter Huntsman said. Peter and Jon Huntsman were joined by director Wayne Reaud and two lawyers from Vinson & Elkins. Black was joined by partner Josh Harris and three lawyers.

‘Cold’ Start

“The meeting started off pretty cold, with them putting in a very low number, while we put in what they would probably characterize as a ridiculously high number,” Huntsman said. “Two hours later, they said we are just miles apart and should probably try to get together again in a month or so.”

That’s when Reaud suggested continuing the negotiations without lawyers in the room. Within an hour, Jon Huntsman and Black were alone in a conference room, where they remained except for breaks and evenings, until they reached a settlement.

Not Pursuing Buyout

Huntsman is not pursuing another buyout, Peter Huntsman said.

“In today’s market, it would be next to impossible for a multibillion transaction to happen,” he said.

Huntsman’s fourth-quarter results, excluding the settlement, probably will mark the bottom of the industry contraction, because demand is suffering from weak end markets as well as customers’ decisions to use up inventories, Peter Huntsman said. First-quarter sales should improve from the current period, with “genuine” demand gains possible in the second half, he said.

Huntsman also will benefit next year from lower costs for petroleum-derived raw materials, such as ethylene and benzene, he said. Huntsman each year buys 200 million gallons of benzene, the price of which has dropped from about $4.80 a gallon to about $1 in less than two months, he said.

To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net

Last Updated: December 15, 2008 16:43 EST