By: Frank Esposito
August 1, 2014
The initial public offering of Westlake Chemical Partners LP — the spinoff firm that includes the ethylene assets of Westlake Chemical Corp. — is off to a hot start.
WCP stock debuted July 31 on the New York Stock Exchange at $24 per share. By the end of that first trading day, the price had reached $30.78 – an increase of more than 28 percent. The stock closed at $29.25 per share Aug. 1, still well above the IPO price.
Early expectations were that the stock would sell for between $19 and $21 per share. The IPO originally was expected to generate $272 million. Shares sold through the IPO equal a stake of about 44 percent in WCP. Westlake will own the remainder of shares.
Houston-based WCP includes Westlake’s ethylene plants in Lake Charles, La., and Calvert City, Ky. Those plants have a combined annual capacity of almost 3.4 billion pounds. The Longview Pipeline — a 200-mile common carrier ethylene pipeline that runs from Mont Belvieu to Longview in Texas — also is included in the new firm’s assets. Westlake has a polyethylene production unit in Longview.
Westlake’s downstream PE and PVC production facilities will consume a substantial majority of the ethylene produced by WCP. Houston-based Westlake has entered into a 12-year ethylene sales agreement with WCP, under which Westlake will agree to buy 95 percent of the new firm’s ethylene output at a price that’s expected to generate a fixed 10-cent per-pound margin. Westlake, in turn, will supply the new firm with the ethane it needs to produce ethylene.
The spinoff is being made to maximize Westlake’s ability to benefit from low-priced, shale gas-based feedstock in North America. Westlake’s per-share stock price was over $130 when it initiated a two-for-one stock split on March 18. The split-adjusted per-share price of $66.95 was above $90 in late July and stood near $87.50 in early trading Aug. 1.
Westlake — with major businesses in ethylene, polyethylene and PVC resin and pipe — has benefited from low-priced natural gas feedstock at many points of its production chain. For full-year 2013, the firm’s profit grew almost 60 percent to more than $610 million. Annual sales grew more than five percent to almost $3.8 billion.
This success carried over into the first quarter of 2014, as Westlake’s sales grew almost 19 percent to $1.03 billion vs. the same quarter last year. The firm’s quarterly profit increased 28 percent to $158 million in the same comparison. Westlake in April also increased annual ethylene production capacity by 180 million pounds at its plant in Calvert City.
Westlake also recently completed its purchase of German specialty PVC maker Vinnolit Holdings GmbH for almost $670 million. Westlake acquired Ismaning, Germany-based Vinnolit from private equity firm Advent International of Boston. The deal includes five production plants in Germany and one in the United Kingdom. These plants have total annual capacity of 1.7 billion pounds of PVC, 1.4 billion pounds of vinyl chloride monomer feedstock and 1 billion pounds of caustic soda.
Vinnolit employs 1,400 and posted sales of $1.25 billion in 2013. The firm’s products are used in a wide range of industrial and building product applications. The acquisition would increase Westlake’s $3.8 billion annual sales total by about one-third.