Axiall rejects compatriot Westlake’s US$1.4 billion bid

At a time when consolidations are rife in the chemicals sector, with the most recent being the Dow/Dupont US$1 billion merger, North American maker of vinyl building products and vinyls Axiall Corporation says it has rejected a proposal from PVC producer Westlake Chemical to buy the company in a deal valued at about US$1.4 billion.

The proposal was for US$20 per share (comprised of US$11 in cash and 0.1967 of a Westlake share, which represented a value of US$9 based on Westlake's closing price on January 22, 2016, the last trading day before Westlake made its proposal). According to Westlake, the proposal represented a significant premium of 108% to Axiall's closing price of US$9.60 on January 22, 2016. The total value of the proposed transaction is approximately US$2.9 billion, including Axiall’s US$1.5 billion debt.

Axiall’s President/CEO Timothy Mann said in the rejection letter that the company was taking other steps to increase shareholder value, including acknowledging the sale of its building products business, which could command as much as US$800 million, according to analysts.

“We believe that Westlake’s proposal is an opportunistic attempt to take advantage of challenging public equity market conditions and significantly undervalues Axiall’s assets and its long-term prospects,” commented Mann. “The price of Axiall stock was at US$20.18 as recently as Dec. 1, 2015. We remain committed to achieving our US$100 million run rate cost reduction and productivity target by the end of 2016, as well as our investment in the LACC ethane cracker project with our joint venture partner Lotte Chemical.”

Late last year, Axiall and Lotte reached a final investment decision to construct an ethane-based ethylene plant in Lake Charles that would be expected to produce 1 million tonnes/year of ethylene. The plant will provide partial backward integration for Axiall’s vinyls business and will supply a new monoethylene glycol (MEG) facility being built by Lotte, adjacent to the new ethylene plant. The steam cracking facility will be built by LACC, the joint-venture company recently formed by Axiall and Lotte, adjacent to Axiall’s largest chlor-alkali chemical facility, located in Lake Charles, to take advantage of Axiall’s existing infrastructure, access to competitive feedstock resources, and ethylene distribution infrastructure. The facility’s anticipated start-up would be the beginning of 2019.

Over the past year, Atlanta-based Axiall has been under pressure from its biggest investor, Shapiro Capital Management, to do a deal.

Houston-based Westlake, which also produces vinyl products, and is controlled by the billionaire Chao family, tried to buy Axiall (then known as Georgia Gulf Corp) in 2012 for US$1.2 billion. But it was rejected as too low. Axiall was renamed in 2013 after acquiring chlorine assets from PPG Industries Inc.

“We are surprised and disappointed by Axiall’s summary rejection of our proposal, which provides Axiall shareholders with a significant premium and upside potential,” Westlake’s President/CEO Albert Chao said in a statement.

According to Bloomberg, the Chao family owns 70% of Westlake,. The company was started by T.T. Chao, along with his sons Albert and James, in 1986 with a PE plant acquired from Occidental Petroleum Corp.

If Axiall had agreed to the acquisition, it would have been Westlake’s biggest transaction. It paid almost US$700 million for the purchase of a German maker of PVC from Advent International Corp. in 2014.

Chao added in a letter to the Axiall shareholders, “In this challenging environment, we believe Axiall's unwillingness to even discuss our compelling proposal exposes its shareholders to significant risk and uncertainty. Given this response, we feel we have no choice but to bring this proposal to the attention of Axiall shareholders.”

Axiall would provide Westlake with additional ethylene and chlorine assets for its vinyls business.

Chao said, “The combination of Westlake and Axiall would create a more efficient, diversified and competitive company, far better positioned to succeed and grow in this challenging environment. With Westlake's Olefins business and a combined Westlake/Axiall Vinyls business, there would be an immediate opportunity to backward integrate into the ethylene market. The combined company would also benefit from Westlake's European vinyls business (Vinnolit), which is a global leader in vinyl technology and specialty PVC resins.”

Early this year, Westlake approved plans to expand ethylene capacity at the Calvert City, Kentucky facility, adding about 32,000 tonnes of stated annual ethylene capacity to the Calvert City facility during the first half of 2017. The total 50,000 tonnes/year capacity, is in addition to the 150,000 tonnes/year ethylene expansion at the Petro 1 facility in Lake Charles, Louisiana, which is expected to begin in the second quarter of 2016.