Natgas-based synergies drive PPG, Georgia Gulf merger – CEOs

19 July 2012 15:54  [Source: ICIS news]

HOUSTON (ICIS)--Synergies from US natural gas-based chlor-alkali production are the main drivers behind the planned merger of PPG Industries’ commodity chemicals business and Georgia Gulf, the CEOs of the companies said on Thursday.

Under the $2.1bn (€1.7bn) deal, as announced earlier on Thursday, PPG will separate its commodity chemicals business and then merge it with Georgia Gulf into a new company.

The inital stock market reaction to the deal was favourable, with Georgia Gulf’s shares up by 12.7% to $32.51 and PPG’s shares up by 3.3% to $107.64 at 10:03 hours in New York (14:03 hours GMT).

Georgia Gulf CEO Paul Carrico and PPG CEO Charles Bunch told analysts in a conference call that the combined company would have enhanced vertical integration with significant US natural gas-driven chlor-alkali production.

“Approximately 70% integration to natural gas-fired cogeneration will make the combined company one of the lowest cost integrated chlor-alkali producers in the world,” Carrico said.

The vertical integration would enhance plant operating rates, he added.

“This is a unique opportunity to do something together that neither company really could have achieved on its own,” Carrico said.

“I have been in the chemicals industry for over 30 years and never seen a better opportunity to bring together such strong assets and talented people,” he said.

The combined company is expected to achieve some $115m in annualised cost synergies within two years, he said.

About $40m/year in savings would come from the companies’ combined $1bn/year purchases of ethylene and natural gas, he said.

The optimisation of plant operating rates would yield $35m/year in savings, and reductions in overheads and other expenses would come to an estimated $40m/year, he said.

Carrico pointed in particular to the Lake Charles chemical site in Louisiana, where both PPG and Georgia Gulf have significant production assets.

“This transaction allows us to fully optimise the Lake Charles complex and make it a globally competitive facility, with great access to export markets,” he said.

Carrico said at this time plans for the new company were primarily focused on synergies from the chlor-alkali integration, rather than the ethylene side of the business.

Nevertheless, the combined company will also be well-positioned to participate in North American ethylene expansion, he said.

“We still plan to look at [ethylene] and work our way through that during the next several years as all of the large amount of capacity comes on,” Carrico said.

He did not directly respond to an analyst who asked why the merger with PPG was a better deal for Georgia shareholders than the merger with Westlake. Westlake, in May, withdrew its $35/share bid for Georgia Gulf after failing to win over Georgia Gulf’s management.

PPG CEO Charles Bunch said that from PPG’s point of view, the transaction offers important tax advantages as it is structured as a “Reverse Morris Trust”.

“This is important, as the commodity chemicals business has a very low tax basis, and other potential transactions would have created significant taxes that would have diluted shareholder value,” Bunch said.

($1 = €0.82)


By: Stefan Baumgarten
+1 713 525 2653



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