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Strategies & Market Trends : Speculating in Takeover Targets -- Ignore unavailable to you. Want to Upgrade?

To: richardred who wrote (2388)	9/14/2010 11:08:05 AM
From: richardred	Respond to of 7253

Apollo Deal Shows Buyout Firms’ Rebound September 14, 2010, 8:00 am The deal world barely took notice Monday when the chemicals makers Momentive Performance Materials and Hexion Specialty Chemicals announced they were combining to form one of the world’s largest chemicals companies. But if you want to understand just how far private equity firms — and specifically Apollo Global Management, which owns both companies — have recovered from the depths of the financial crisis, spend a few minutes with this merger. Eighteen months ago, amid collapsing commodities and credit markets, both companies were on their knees. In March 2009, Albany-based Momentive warned that its steep earnings decline could result in violating the liberal covenants on its loans, resulting in a possible default. Around that time, Hexion, based in Columbus, Ohio, was reeling not only from record weak demand, but also from an adverse legal ruling after it walked away from a $10 billion deal to buy Huntsman. Both companies had to cut costs aggressively to mitigate the steep decline in revenues. As for Apollo, its $10 billion buyout fund that owned both companies was widely considered the most stressed of the large global buyout vehicles, with then-ailing companies such as Harrah’s Entertainment, Realogy and Claire’s Stores. It also owned a portfolio of distressed leveraged loans on which it had received margin calls. The fund, Apollo VI, was valued at roughly 34 percent below its cost, and many thought it was worth far less than that. Today, Momentive and Hexion are coming off stellar second-quarter earnings amid a sharp recovery in demand for their products. Their merger is one of strength, creating a company with $7.5 billion in revenues, 10,000 employees and 120 locations around the world. As for the Apollo fund, its companies have taken advantage of the record rally in the credit markets to aggressively refinance their debt. Their leveraged loan portfolio, which had included more than $1 billion of Momentive and Hexion debt, has snapped back, and Apollo VI was marked at 19 percent above its cost as of March 2010. The Momentive-Hexion combination continues to fulfill Apollo’s decade-old ambition to roll up the chemical sector. Hexion, a resin maker, was formed by Apollo in 2005 through the merger of Borden Chemical, Resolution Performance Products (a Royal Dutch Shell unit) and Bakelite. It has continued to grow through a half-dozen more acquisitions. In December 2006 Apollo acquired 90 percent of General Electric’s advanced materials division for $3.8 billion and renamed it Momentive. The combined company will be headquartered in Columbus and be run by Hexion’s chief, Craig Morrison, but will use the Momentive name. If all goes as planned, expect an initial public offering filing in the coming months to pay down some of its more than $6 billion in debt. Chemical companies are in hot demand and are commanding rich valuations, as evidenced by the princely $15 billion Dow Chemical payed for Rohm & Haas last year. dealbook.blogs.nytimes.com