Westlake, Georgia Gulf deal ‘strategically sound’ – analyst

13 January 2012 19:57  [Source: ICIS news]

NEW YORK (ICIS)--US-based Westlake Chemical’s proposed acquisition of US-based Georgia Gulf would be “strategically sound”, a Wall Street analyst said on Friday.

“Both Georgia Gulf and Westlake are players within the North American vinyls market so the product overlap and associated synergy opportunities are clear," said Hassan Ahmed, an analyst at investment advisory firm Alembic Global Advisors, in a research note.

“The deal would bring with it around 1bn lb of chlorine capacity – a product that Westlake was expanding capacity in by 550m lb for a cost of $300m [€234m]”, he added.

Westlake has made a $30/share hostile bid for Georgia Gulf, valued at $1.02bn.

Westlake said it first approached Georgia Gulf on 20 September 2011 with its proposal but that Georgia Gulf has been “unwilling to provide us with information that would allow us to explore these opportunities or to enter into substantive discussions”.

Shares of Georgia Gulf were up by $8.71, or 36%, to $33.19 in early Friday afternoon trading on the New York Stock Exchange.

The share price of Georgia Gulf above Westlake’s bid indicates that investors are expecting a higher bid – either from Westlake or another party.

Three other companies have product overlap with Georgia Gulf in the US – Braskem, Formosa Plastics and Shintech, noted Ahmed.

“Both Formosa and Shintech have never acquired any assets in the US and have grown organically, suggesting that they may not partake in a bid for Georgia Gulf,” said the analyst.

“Braskem is a wild card – recently it has participated in US commodity chemical [mergers and acquisitions] in product areas which it is already a player. That said, Braskem’s balance sheet is already stretched with a net debt to capital of 52%, so we would assign a low probability to the company stepping in to acquire Georgia Gulf. We see Westlake as the most obvious suitor,” he added.

Westlake’s $1.02bn bid values Georgia Gulf at six times estimated 2012 earnings before interest, tax, depreciation and amortisation – essentially in-line with US commodity chemical company cycle average multiples, noted Ahmed.

A combination between Westlake and Georgia Gulf could mean that Westlake scraps its chlorine expansion plans, he said.

“There is a case to be made that now Westlake may consider scrapping those capacity addition plans, thereby avoiding the $300m spend,” said Ahmed.


By: Joseph Chang
+1 713 525 2653



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