Westlake Makes Hostile Bid For Axiall

Intent on building a back-integrated vinyls powerhouse, Westlake Chemical has made a $2.9 billion hostile bid to buy rival polyvinyl chloride maker Axiall. The cash and stock offer is valued at more than twice the $9.60 closing price of Axiall’s stock on Jan. 22.

Axiall’s board rejected the bid within three day of receiving the offer, preferring to go it alone, says Westlake, which also released a letter to Axiall’s board noting its disappointment and outlining the offer to Axiall shareholders.

Axiall acknowledges that it received Westlake’s bid on Jan. 25, and rejected it soon after. It characterizes the bid as “an opportunistic attempt to take advantage of challenging public equity market conditions and significantly undervalues Axiall’s assets and its long-term prospects.” Axial also vows to push ahead with a program to eliminate $100 million in costs by the end of this year and to continue a portfolio evaluation which includes a potential sale of its building products business.

The Westlake offer builds on strong 2015 merger and acquisition activity in the chemical sector, which notably saw Dow Chemical and DuPont announce plans to hook up. According to a just-released study on chemical industry merger trends from consulting firm Deloitte, companies are increasing focus on their core strengths and expect acquisitions will deliver growth and shareholder value.

In the Jan. 29 letter to Axiall, Westlake CEO Albert Chao wrote, “We would have preferred to engage in a private dialogue regarding our proposal,” but because of the rejection “we feel we have no choice but to bring this proposal to the attention of your shareholders.”

Arguing for the combination of the two firms, Chao stated that together they would create “a more efficient, diversified, and competitive company.” Benefits would include backward integration into feedstock ethylene crackers operated by Westlake and a vinyl outlet in Europe through Vinnolit, which Westlake acquired in 2014.

Axiall’s operations are mostly in North America. The firm recently committed to build its first ethylene plant in partnership with South Korea’s Lotte Chemical in Lake Charles, La.

Westlake has had similar designs in the past. In 2012, Westlake made a bid to buy Axiall predecessor Georgia Gulf for $1.2 billion, but discussions fell through. Georgia Gulf subsequently merged with PPG Industries’ chlor-alkali operations in 2013 to form Axiall.