Georgia Gulf To Westlake: Not So Fast!
Jan20

Georgia Gulf To Westlake: Not So Fast!

You may have heard that Georgia Gulf has rebuffed a $30-per-share takeover bid from Westlake. Here are a few points: 1) By my calculations, the bid is worth just over $1 billion, or close to $1.7 billion, including Georgia Gulf’s long term debt. Georgia Gulf’s expectations for EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2011 are between $245 million and $255 million. This makes the offer seem a little cheap. However, Georgia Gulf’s book value (equity less intangibles and goodwill) is about $243 million. 2) Georgia Gulf has been through heck and back. It bought building products maker Royal Group technologies for $1.6 billion in 2006. Congratulations if you recognize that this was the worst possible time for a company to increase its exposure to the housing market. The downturn didn’t bankrupt Georgia Gulf, but it came close. The company almost got delisted from NYSE when its market cap slipped under $75 million. It needed time from creditors for payments due. Moreover, a debt for equity swap amounted to a quasi-bankruptcy: shareholders were diluted, though not completely wiped out. 3) Strategically, this is a no-brainer for Westlake. Both are integrated chloro-vinyl companies. Westlake is integrated back into ethylene; Georgia Gulf isn’t. Both make fabricated products, with Westlake’s business oriented towards pipe and Georgia Gulf leaning towards window and door profiles. Westlake also makes polyethylene. Georgia Gulf has a cumene/phenol business. 4) Expect more to come. I would have to think that Westlake will follow with a tender offer. And given that the stock is trading at above $30 per share, I would expect to see Westlake sweeten the deal somewhat. I’m not terribly sure if the bid makes it into the courts or to a proxy fight. 5) Georgia Gulf is preparing a defense. Westlake already owns about 4.8% of Georgia Gulf. A poison pill, in the form of a rights offering to Georgia Gulf shareholders, will prevent Westlake from owning more than 10%. 6) Georgia Gulf had a staggered board until 2010. A staggered board means that not all of the directors are up for reelection every year. Now, Georgia Gulf directors are up for election when their term ends. By my reckoning, Georgia Gulf has five of its eight directors up for reelection later this year. Three will serve until 2013. This might present an opportunity for Westlake to stack the board, depending on the nomination process. 7) I wouldn’t be surprised to see competing bidders. The last big takeover drama in the industry was Air Products’ run at Airgas. There were few potential suitors for Airgas. There may be more for Georgia Gulf. Mexichem...

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Notes From A Latin American Meeting
Apr07

Notes From A Latin American Meeting

Back on March 25, I attended the Petrochemical Networking Meeting in Houston, put on by the Latin American focused chemical consulting groups Intellichem and Maxiquim. It attracts many of the Latin American executives that are in the state for the CMAI conference and NPRA. I picked up a few bits of information from the presentations: 1) Otávio Carvalho, managing director of MaxiQuim, gave a talk on the Brazilian economy. He pointed out that since 2004, Brazilian unemployment dropped from about 13% down to about 6%. “In the future, it will be difficult to find people to work in your companies,” he said. In addition, 30 million people exited poverty and entered the middle class over the last five years. Who would have thought a decade ago that Brazil would have made such a transition by now? 2) Javier Constante, commercial director of performance plastics in Latin America for Dow Chemical, spoke at the gathering. For the first couple of slides, I was worried that I would suffer through a run of the mill marketing oriented talk. I was wrong. It turned out that Javier is a very bright thinker on the very nature of technology. “Do we ever ask ourselves what is wrong with the computer that is sitting in front of you or the packaging that you are using? When you ask yourself these kinds of questions, then you can begin innovating.” So True. Remember how normal life seemed in the 80s? 3) Constante also noted in the Q&A session that Dow was going to move forward with its plan to build a polyethylene plant in Brazil using ethylene derived from ethanol. The plant, he said, would have 350,000 metric tons per year of LLDPE capacity based on Dow’s solution process. It would start up in 2014. “In the coming weeks, we’ll have some kind of announcement,” he said. He also noted that Dow is in discussions with a new feedstock partner for the plant. (This project languished because its first partner—Crystalsev—dropped out.) This coming announcement, I would think, will be a new agreement with a new partner. 4) Rui Chammas, executive five president for Braskem’s polymers division, gave an update on Braskem’s project with Pequiven in Venezuela. He said the ethylene/polyethylene project is “on hold”, noting that Braskem is still in discussions with the Venezuelan government on raw materials. He said that the polypropylene project is “more advanced” though there are still talks around location, etc. I think that Rui was just too diplomatic to pronounce the projects dead in front of a room full of people. Venezuela, as a country, is showing very little upside...

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