Updated — Axiall Corp. may have rejected Westlake Chemical Corp.'s takeover bid, but that offer still has done wonders for Axiall's stock price, which has nearly doubled since Jan. 29.
That was the date that Houston-based Westlake went public with news of the offer and of Axiall's rejection. Axiall stock opened at $9.80 and by close had soared to $17.93 by the end of trading Jan. 29 — an 83 percent bump. It's continued to improve since then and was at $19.24 in late trading Feb. 4 — a 96 percent rise vs. the Jan. 29 opening price.
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.
Officials with Atlanta-based Axiall said the Westlake offer undervalued their firm. Brigade Capital Management LP of New York — a large Axiall shareholder — countered on Feb. 1 with a letter saying that although the firm also thought the Westlake offer was inadequate, they also said that they were “disappointed that Axiall did not engage more fully in active discussions” with Westlake.
An Axiall spokesman said his firm would not comment on the Brigade letter. Brigade officials also requested that Axiall form a strategic review committee to consider several options, including the potential sale of the entire company.
Resin market analyst Phil Karig said that with its offer, Westlake “is looking to take advantage of its superior position in ethylene.” Purchasing Axiall “would be a quick way for it to convert some of its low-cost ethylene into PVC without having to take the time to build a new plant or adding to the overall market's total PVC capacity,” according to Karig, managing director of Mathelin Bay Associates LLC in St. Louis.
Axiall already is reviewing options for its Royal Building Products construction products unit. That unit ranks fifth among North American pipe, profile and tubing extruders, according to a Plastics News ranking, with 2014 sales of $878.6 million.
Axiall officials had announced in November that Royal was under review. Royal senior vice president Simon Bates recently told PN that “one possible outcome [of the review] may be the sale of Royal Building Products.”
Both firms are major producers of PVC and PVC-related construction products in North America. Westlake also is a player in the polyethylene and ethylene markets.
Axiall posted a massive loss of almost $760 million in the first nine months of 2015 but that loss can be attributed to a non-cash charge of almost $850 million for goodwill impairment. That charge was taken in the third quarter, as the firm wrote down the value of some of its holdings.
In a Nov. 3 conference call, Chief Financial Officer and Executive Vice President Gregory Thompson said that most of the goodwill impairment was tied into changes in Axiall's stock price. Those changes resulted from the firm's mid-2012 merger with the commodity chemicals business of PPG Industries.
“The big picture way to look at it…is [that] when we announced the transaction with PPG, initially, the value of the deal was around $2.1 billion,” Thompson said on the call. “And over the period of time between then and January of 2013 to close, our equity value actually went up by about $700 million.
“So the economics of the deal was all struck at $2.1 billion, but that big run up in the stock price resulted in that $700 million of goodwill going on the balance sheet — in the opening balance sheet for the entity,” he added. “So that's a big part of where it came from related to all that goes into evaluating the write-down. There are a bunch of factors. The most significant short-term factor was the decline in our stock price.”
On Wall Street, the firm's per-share stock price was near $49 in February 2015 but had nose-dived since then, falling under $30 in July and closing at $9.80 on Jan. 28.
Axiall's nine-month sales also fell 10 percent to $2.6 billion. The firm's chlorovinyls unit, which includes PVC resins and compounds, saw sales fall 13 percent in that period. By comparison, Axiall's building products unit fared better, with nine-month sales falling less than 2 percent. That unit posted nine-month operating profit 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.
On the Nov. 3 call, CEO Mann commented on the ultimate fate of the Royal business, which Axiall predecessor Georgia Gulf bought for $1.6 billion in 2006. He confirmed that Royal had recently cut 70 jobs in order to improve profitability.
“This strategic review [of Royal] is really a substantial evolution in our thinking about the business, and it's a step that we haven't taken lightly,” he said. “Our evaluation will be rigorous and it will take some time.”
