US Westlake needs higher bid for Axiall

An analyst says the Houston company’s initial offer was a strategic “low-ball” bid, but a serious merger deal would require up to another $700m. (Blend Images/REX Shutterstock)

HOUSTON (ICIS)–US Westlake Chemical’s initial offer for Axiall was a strategic but “low-ball” bid, and will need to be raised to secure the deal, an analyst said on Monday.

In a note, Alembic Global Advisors head of research Hassan Ahmed said that Westlake’s initial bid of $20/share in late January was unrealistically low, and that in order to get the deal done, the company would need to raise its bid to $25-30/share.

Alternatively, Westlake would need to raise the current bid value of $2.7bn by $350-700m, according to Ahmed’s assessment.

Westlake made its bid on 29 January, which Axiall’s board rejected on the grounds that the deal undervalued the company.

Axiall shares have declined by around 76% over the last three years, and the company’s share prices may be at or near floor pricing levels, Ahmed noted.

However, Axiall’s shares were trading at or above the bid price of $20/share as recently as December, “highlighting the opportunistic nature of Westlake Chemical’s bid”, Ahmed said.

The acquisition would help “plug holes” in Axiall’s ethylene shortage, while integrating its chlor-alkali assets into Westlake’s downstream vinyls business.

The merged company would have an oversupply of chlor-alkali, vinyl chloride monomer (VCM) and polyvinyl chloride (PVC), while being short of around 2bn lb of ethylene.

The hole could be filled by “de-bottlenecking” and moving forward with Axiall’s announced ethane cracker joint venture with South Korea based Lotte Chemicals, Ahmed added.

Moving forward with the cracker would lower the merged company’s net short ethylene position by around 1bn lb, which could be reduced further on the back of additional de-bottlenecks at Westlake, Ahmed said.

Operational synergies could be as high as $300m, Ahmed said.