Westlake Chemical Corp. raised the stakes in its takeover bid of Axiall Corp. by 17 percent to $3.1 billion, but the offer was deemed “inadequate” and unanimously rejected by the board of directors of Atlanta-based Axiall, a maker of PVC resins, compounds and PVC-related building products.
In response Westlake, a Houston-based manufacturer of petrochemicals, resins and PVC building products, announced April 4 that it will file preliminary proxy materials with the Securities and Exchange Commission to proceed with the election of an alternate slate of 10 candidates to Axiall's board.
In an April 4 letter to Axiall shareholders, Westlake President and CEO Albert Chao expressed “deep concerns” about the Axiall board's demand for a “substantially increased proposal value” and what he describes as a refusal to make a counter proposal, negotiate in any way, or provide constructive feedback.
“I believe this rejection is not in your best interests and Axiall's unreasonable position is putting at risk the benefits you would receive from this financially and strategically compelling transaction,” Chao told shareholders.
Westlake's latest proposal, which was made March 29, sought to acquire outstanding shares of Axiall for $14 in cash and a 0.1967 of a Westlake share, which has an aggregate value of $23.35 per share in cash and stock. The previous offer was for $20 per Axiall share, which included $11 in cash and almost 0.2 of a Westlake share.
Chao said the revised proposal represents a premium of more than 143 percent to Axiall's closing price of $9.60 per share on Jan. 22, which was the last trading day before Westlake submitted its first takeover bid to Axiall. The total value of the revised proposal was $3.1 billion, including assumption of Axiall liabilities, such as $1.5 billion of outstanding debt.
Still, the Axiall board of directors did not budge after consulting with independent financial and legal advisers, according to a March 31 letter to Westlake from Axiall President and CEO Timothy Mann, Jr.
“To reiterate what we have already told you, we are not opposed to a strategic transaction provided that it delivers full and fair value to Axiall shareholders,” Mann wrote to Albert Chao and Westlake Chairman James Chao. “We remain willing to share information and have further discussions, but the value you currently propose simply ignores the high quality of our assets, the significant growth potential of our business and the powerful synergies available in a combination.”
Those synergies could be worth $270 million, which Mann said is $210 million more than the $60 million in synergies included in Westlake's proposal.
Axiall's demand for a better offer is based on “flawed assumptions,” Albert Chao told shareholders in his April 4 letter. He said Axiall is overestimating the earnings power of its business.
“Given the Axiall board's unrealistic expectations and entrenched position, we feel we have no choice but to proceed today with a proxy contest to replace Axiall's directors with new independent and highly qualified directors who are willing to evaluate all options, in accordance with fiduciary duties,” Chao wrote.
Axiall shareholders deserve a board that answers to them and considers all strategic options, Choa said, pointing to the sale of non-core parts of Axiall's building products business as one of the ways the current board is acting against their best interests.
“We are very concerned, given the integrated nature of these businesses with the rest of the company, that a separate sale would have a negative impact on the remaining business,” Chao told shareholders.
That sale has happened. About three hours after the Westlake CEO's letter was made public, Los Angeles-based private equity firm OpenGate Capital announced it had completed the acquisition of Axiall's vinyl window and doors profiles division, which was part of Royal Building Products, for an undisclosed sum.
OpenGate has been renamed the division Energi Fenestration Solutions and it will become a stand-alone entity led by Royal's Jesse Hawthorne as CEO.
“This was a very competitive process with both strategic and financial parties biding for the Energi business,” Matthias Gundlach of OpenCapital said in a news release.
Axiall said the business sold to OpenGate was not core. It is in discussions about the sale of core elements of the building products unit.
The sale of the windows and door division, among other actions, shows Axiall was not serious about completing a transaction and now discussions have been formally terminated, Albert Chao wrote to Axiall shareholders. He urged them to demand good-faith negotiations or elect a new board at its annual meeting, which has yet to be scheduled.
In February, Westlake named the slate of candidates it plans to nominate to the Axiall board. The list includes former plastics industry leaders, Charles Crew and Randy Woelfel. Crew is the former president and CEO of Sabic Innovative Plastics and Woelfel was CEO of Nova Chemicals Inc.
