Updated — In a major materials and PVC construction products move, Axiall Corp. has rejected a $2.9 billion purchase offer from rival Westlake Chemical Corp.
Houston-based Westlake disclosed the offer in a Jan. 29 news release. “We are surprised and disappointed by Axiall's summary rejection of our proposal, which provides Axiall shareholders with a significant premium and upside potential,” President and CEO Albert Chao said in the release.
Atlanta-based Axiall countered with a response the afternoon of Jan. 29, confirming that the firm had rejected the Westlake offer.
“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,” President and CEO Timothy Mann said in a news release.
“The price of Axiall stock was at $20.18 as recently as Dec. 1, 2015,” he added. “We remain committed to achieving our $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.
“In addition, we are continuing to evaluate our entire portfolio of businesses and assets to identify opportunities to enhance shareholder value, including our sales process for the Building Products business.”
The Westlake offer was $20 per Axiall share, including $11 in cash and almost 0.2 of a Westlake share — an amount that equaled almost $9 as of Jan. 22. The $20 offer was 108 percent more than Westlake's closing price of $9.60 on Jan. 22.
The $2.9 billion total also includes Westlake taking on approximately $1.5 billion in Axiall debt.
Both Westlake and Axiall are major PVC makers in North America. Westlake also is a large supplier of polyethylene and ethylene, and both companies are major producers of construction-related PVC products.
Axiall's Royal Group Inc. unit, in Woodbridge, Ontario, ranks No. 5 on Plastics News' survey of North American pipe, profile and tubing extruders, with sales of $878.6 million.
Westlake's North American Pipe Corp. unit, which is based in Houston, is No. 3 on the Plastics News ranking, with estimated sales of $930 million.
Westlake also tried to buy Axiall in 2012, when the firm was operating as Georgia Gulf Corp. Westlake's final offer at that time was $35 per share, which valued Axiall at $1.2 billion, not including debt. Westlake made that offer in January 2012 and withdrew it in May after being rejected by shareholders.
The Westlake release included a letter from Chao to Axiall's board. In the letter, Chao pointed out how a combined Westlake/Axiall PVC business would benefit from being backward integrated into feedstocks via Westlake's olefins unit. He also questioned Axiall's current strategy.
“Less than three days after we provided our written proposal, your management informed us that you remain committed to the continued implementation of your current standalone strategic plan,” Chao wrote. “The market reaction to your plan does not suggest investors believe it will deliver anywhere near the value and upside of our proposal.
“In this challenging environment, we believe your unwillingness to even discuss our compelling proposal exposes your shareholders to significant risk and uncertainty.”
Axiall's results for the first nine months of 2015 would seem to support Chao's opinion. The firm posted a loss of almost $760 million in that period as sales fell 10 percent to $2.6 billion. Axiall's per-share stock price was near $49 in February 2015 but has nose-dived since then, falling under $30 in July and closing at $9.80 on Jan. 28.
Most of Axiall's nine-month swoon can be attributed to its chlorovinyls unit, which includes PVC. That unit saw sales fall 13 percent while posting an operating loss of $730.5 million. By comparison, Axiall's building products unit fared better, with nine-month sales falling less than 2 percent. The unit posted nine-month operating income of $32.5 million — up almost 19 percent vs. the same period in 2014.
Chlorovinyls accounted for almost 75 percent of Axiall's sales in the first nine months of 2015, with the remainder coming from building products.
Westlake, on the other hand, saw nine-month sales rise 6 percent to almost $3.5 billion as profit grew 8 percent to $535 million. The firm has enjoyed a multi-year stretch of high profitability, due in large part to use of low-priced natural gas from shale deposits. In 2014, this profit allowed Westlake to complete a 2-for-1 stock split and to spin off some of its assets, including ethylene into a separate public company — Westlake Chemical Partners LP.
On Wall Street, Westlake's per-share stock price has been on a roller-coaster ride since that March 2014 stock split. It was above $78 as recently as April but had fallen to near $45 in early trading Jan. 29.
Mark Kallman, a PVC market analyst with Resin Technology Inc. in Fort Worth, Texas, said in an email that Westlake “makes a good case in their letter for the combination.” But he added that “in the middle of this stock market swoon, I'm not surprised that Axiall rejected them.”