The good news for Huntsman Corp. is that it walloped Hexion Specialty Chemicals Inc. in court and extracted $1 billion in cash for Hexion's backing out of its deal to buy Huntsman.

The bad news is that Huntsman's stock remains around $3, a mere fraction of the $28 Hexion agreed to pay in 2007. Nearly $6 billion of shareholder value evaporated.

The bruising bust-up and the courtroom battle that ensued didn't end much better for the buyers, Hexion and its owner, Apollo Management LP. Hexion and Apollo had to cough up the huge sum to save Apollo's stake in Hexion. It looked like a lose-lose ending.

If one deal captured the roller-coaster of the past two years, it was Hexion-Huntsman. The original agreement symbolized the exuberance of the market in 2007. Apollo and Hexion's decision to pull out a year later encapsulated the regrets of private equity firms generally as they watched the assumptions of the boom years unravel. The case also offered an object lesson in the importance of contract drafting.

But more than anything, Hexion-Huntsman offered sheer entertainment. Of all the mergers and LBOs that stretched across the turn in the markets in 2007 and later snapped, the Huntsman saga was the most irresistible to spectators for its sheer bitterness.

The tale began in June 2007, when Huntsman agreed to a $9.6 billion, $25.25 per share, offer from Dutch chemical company Basell Holdings BV. That was a 34% premium, but nine days later Hexion topped that with a $27.25 per share offer that it ultimately boosted to $28. Huntsman accepted on July 12. It was a coup for Huntsman's controlling shareholders, the father and son team of Jon and Peter Huntsman, and vulture fund MatlinPatterson Global Opportunities Partners LP, which had helped bail out the company several years earlier.

Had antitrust concerns not delayed a closing well into the next year, the deal might have closed without a hitch. But by the time the calendar leaf turned over into 2008, the Huntsman takeover was viewed as one of the most vulnerable of pending private equity-backed deals. Huntsman shares traded at spreads of more than $4 to the offer much of January and February. Investors were understandably nervous about a deal that would replace $6.8 billion of Huntsman equity with debt as part of a $14.4 billion financing of the combined business. That much leverage had been plausible in July 2007. By 2008 the suspicion was that someone -- Apollo or its lenders -- would try to call off the deal.

Hexion made it official in June: It wanted out. It sued in Delaware to terminate the deal, arguing that, while each company was solvent on its own, given Huntsman's lower-than-expected earnings and increased net debt, the combined company would be insolvent under all that new debt.

The Huntsmans, père et fils, were incensed. They took to television to attack Apollo founders Leon Black and Joshua Harris personally. They also launched their own lawsuit. Borrowing a play from Clear Channel Communications Inc., another Texas company whose buyout had been on the verge of collapsing. Huntsman filed a tort action in Texas seeking $3 billion in damages, plus punitive damages, for fraud and tortious interference.

Huntsman had the law on its side because its lawyers at Vinson & Elkins LLP had drafted a nearly airtight merger agreement. Its material adverse change clause excluded changes affecting the chemical industry generally, and the company could sue for specific performance.

Delaware Vice Chancellor Stephen Lamb was having nothing of Hexion's insolvency arguments. After a six-day trial in September, he issued a stinging, 91-page decision rejecting Hexion's material adverse effect argument and ordering Hexion to use its best efforts to complete the takeover. Worse still for the buyers, he found that they had "knowingly and intentionally breached" the merger agreement and ruled that the $325 million liquidated damages clause did not apply to a deliberate breach. Perhaps hoping to bludgeon the buyers into a settlement, he made that point a second time: "Any damages which were proximately caused by that knowing and intentional breach will be uncapped."

The stock spiked to $4 after the ruling, but that still left Huntsman's market cap more than $3.5 billion below the value of the equity portion of the deal. If Huntsman won an award for that amount, it could have sunk Hexion. On top of that, there was the chance it could extract tort damages from Black and Harris' hides in Texas. Things did not look pretty for Apollo or Hexion.

Ten weeks later the two sides announced a settlement. Hexion agreed to pay the $325 million breakup fee, Apollo would give $425 million to Huntsman and would buy $250 million of convertible 10-year Huntsman notes -- a grand total of $1 billio. (Huntsman retained its tort claims against Credit Suisse Group and Deutsche Bank AG for refusing to fund the deal.)

Investors thought Huntsman settled too cheaply and sent its stock down nearly 50% the day the agreement was unveiled to less than $3, where it has remained since.

Even if Apollo had abandoned Hexion, the investment would not have been a complete bust. Apollo's fourth and fifth funds, which owned Hexion, had earned back virtually all of their original $1 billion-odd investment via two dividends in 2005 and 2006. The holding was carried on Apollo's books at $727 million by December 2007, according to the prospectus for Apollo's pending initial public offering, or 4.5 times Apollo's cost basis. Falling valuations of chemical companies would have cut deeply into those figures even without the litigation, but Huntsman's suit could have resulted in a wipe-out. Apollo's fourth, fifth and sixth fund, which had been slated to buy the older funds' position, therefore each contributed toward the settlement in a bid to recoup the unrealized profit that Apollo was showing a year ago.

In theory, Apollo has the chance to make a profit on the convertible Huntsman debt. But the likelihood of that looks slim. The senior unsecured notes pay only 7% -- well below the rates now paid by much healthier companies -- so the notes were likely worth less than face value when issued. Moreover, Huntsman has the option to pay both interest and the balance at maturity in common stock. With Huntsman's shares at roughly $6 when the settlement was signed, the $7.86 conversion price might have offered Apollo some hope for a gain. But with the stock less than $3, any upside is a long way off. Even if the stock does eventually recover to the conversion price, Huntsman could preempt any profit because, after three years, it has the right to buy in the notes at par if the stock trades above the conversion price.

The creditor-friendly terms that Huntsman won might seem familiar to Apollo. They look an awful lot like the terms banks were offering to firms like Apollo not so long ago; a lot like the terms that made deals like the original Huntsman buyout possible.