In the latest merger pact to unravel amid the credit crisis, the Hexion-Huntsman $6.5 billion deal, which has been locked in legal battles for months, has been terminated. Huntsman Corp said on Sunday that it had settled litigation against Apollo Management's Hexion Specialty Chemicals Inc for $1 billion.

Nevertheless, Huntsman would continue its lawsuit against Credit Suisse and Deutsche Bank in Texas. Huntsman has argued that the banks conspired with Apollo and interfered with Huntsman's prior merger pact with previous suitor Basell.

In July, 2007, Apollo's Hexion Specialty Chemicals unit had agreed to buy Huntsman - a Woodlands, Texas, specialty chemicals maker. The deal faltered amid the credit crisis and legal battles, and Apollo tried to walk away from it, citing insolvency concerns about the combined company.

A nasty six-month war followed between Huntsman Corp founder, Jon Huntsman, and Apollo Management LP boss, Leon Black, till the peace pact was struck to avert a potentially disastrous outcome for the New York buyout firm.

Of the $1 billion that Huntsman receives, Apollo will make a $250 million investment in Huntsman in exchange for a 10-year convertible note that pays a 7% coupon. A $325 million breakup fee will be paid by Hexion, funded by the banks that agreed to finance the deal - Credit Suisse Group and Deutsche Bank. Affiliates of Apollo will make cash payments of $425 million.

Huntsman's decision to settle for a smaller amount now, instead of pressing ahead with the litigation, came in the wake of economic conditions and the weakening chemical sector. According to Chief Executive, Peter Huntsman, "It was an advantageous time for both Apollo to settle and for Huntsman to collect and move on."