Georgia Gulf Buys Condea Vista Business for $270 Million

Source: CMR

1999/09/05

By Alex Tullo

In a move that will create North America's third largest producer of polyvinyl chloride resin and vinyl chloride monomer, Georgia Gulf Corporation has agreed to purchase Condea Vista Company's vinyls business for $270 million. After the deal, Georgia Gulf will have a nameplate of 2.6 billion pounds of PVC resin, 3.1 billion pounds of vinyl chloride monomer and 850 million pounds of flexible and rigid vinyl compounds.

In a separate announcement, Georgia Gulf unveiled plans to exit the methanol business (story page 3).

Under the agreement with Condea, Georgia Gulf will obtain vinyl chloride resin plants in Aberdeen, Miss., and Oklahoma City, Okla.; a VCM plant in Lake Charles, La., and a 50 percent interest in the Lake Charles, La.-based VCM joint venture that Condea owns with PPG Industries; and vinyl compounds plants in Aberdeen; Jeffersontown, Ky.; and Mansfield, Mass. A 20-million-pound linear phthalate plasticizer unit in Aberdeen is also included in the deal.

"Acquiring the vinyls business from Condea Vista is a major step in our strategy to become a more integrated manufacturer of chlorovinyl products," says Edward A. Schmitt, Georgia Gulf's president and CEO. He estimates that combining the two vinyls enterprises will generate $20 million in cost savings.

Reduced corporate overhead is predicted to account for $16 million to $17 million of the savings. "While our business will essentially double overnight, it still needs only one management team," Mr. Schmitt says. Improved logistical and manufacturing practices are projected to save the company an additional $3 million to $4 million.

By rationalizing the overlapping products that the two companies make, Georgia Gulf expects to increase operating time at its plants. Such an improvement in efficiency may raise production by more than 5 percent, the company says.

Georgia Gulf expects to complete the Condea deal during the fourth quarter, following regulatory approvals. "We believe the timing is perfect to make a long-term investment in chlorovinyls," says Mr. Schmitt. "Based on historical trends, the VCM and PVC markets are in the early stages of their cyclical turn upward. We've seen price improvements for eight months in a row."

Georgia Gulf is not ruling out further upstream integration. Though Mr. Schmitt says the company is focusing on its current acquisition and has assumed Condea's supply agreements for ethylene and chlorine, he notes that a partnership, or another arrangement that would secure raw material supplies, is a "very appropriate move to make down the road."

Condea says the PVC business was not a strategic fit with the rest of its operations. "The basis of our business plan is to serve the needs of the global surfactants market," says William C. Knodel, Condea Vista's president.

Earlier this year, Condea Vista signed a merger agreement with pipe-maker Eagle Pacific Industries Inc. under which Condea would have swapped its Oklahoma City plant for an equity stake in Eagle Pacific. As part of that deal, Eagle was to acquire Lamson & Sessions, which operates a pipe facility adjacent to the Oklahoma City plant. Eagle terminated the agreement, and litigation ensued between Lamson & Sessions and Eagle.

Ever since the merger that combined the vinyls businesses of Occidental Chemical Corporation and Geon Company, industry analysts have expected a deal among smaller PVC producers such as Georgia Gulf, Condea, Borden Chemicals and Plastics LP, and Westlake. Analysts say Borden may have fewer options with both Condea and Georgia Gulf now apparently out of the running.