US Westlake's $1bn bid for Georgia Gulf is too low – analysts

17 January 2012 20:21  [Source: ICIS news]

Westlake headquartersHOUSTON (ICIS)--US-based Westlake Chemical's $1bn (€792m) bid for Georgia Gulf is too low, analysts said on Tuesday.

Westlake's bid comes to $30/share.

Both companies make polyvinyl chloride (PVC), and house construction is an important end market for the resin.

Although the US housing market is mired in a downturn, Georgia Gulf exports PVC and it is much less dependent on domestic sales, according to a research note by Charles Neivert, managing director for Dahlman Rose.

"Other markets like South America and Asia are growing more robustly than the US," he said.

Georgia Gulf could attract rival bids, especially from producers in Latin America, which makes up a large portion of US exports of PVC, Neivert said.

Neivert believes Georgia Gulf's value is closer to $45/share.

In fact, Georgia Gulf's stock performance gives some strength to Neivert's argument, since it has risen above $30, reaching $33.32 in mid-day trading.

Analyst Frank Mitsch of Wells Fargo also said that Westlake's offer was too low.

"A transaction at $30? Chances are slim and none in our view," Mitsch wrote in a research note.

Mitsch added that the US is getting closer to a housing recovery. Plus, the US is now the cheapest place in the world to make PVC, he said.

Already, the US exports about 40% of its PVC, he said.

PVC uses ethylene as a feedstock, and US-based producers are benefitting from a feedstock ethane advantage against their overseas competitors, who rely on oil-based naphtha.

Like Neivert, Mitsch said Georgia Gulf could attract a rival bid from a foreign company.

If Westlake's proposed acquisition does go through, it would become the second-largest PVC producer in the US, behind Shintech, Mitsch said.

The combined companies would be the nation's largest producer of vinyl chloride monomer (VCM) and the sixth largest chlor-alkali producer, Mitsch said.

($1 = €0.79)

For more on PVC visit ICIS chemical intelligence

By: Al Greenwood
+1 713 525 2645

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