Westlake and Axiall Merger: A Swing and a Miss

Westlake Chemical Corp. (NYSE: WLK) and Axiall Corp. (NYSE: AXLL) made waves in the market Friday morning on news of a failed acquisition. Westlake announced that it submitted a proposal to acquire all outstanding shares of Axiall for $20 (comprised of $11 in cash and 0.1967 of a Westlake share). Despite the fact that Axiall turned down the deal, investors are starting to value this company a lot higher than originally thought.

The proposal, which has been summarily rejected by the Axiall board, represented a significant premium of 108% to Axiall’s closing price of $9.60 on January 22. The total value of the proposed transaction is approximately $2.9 billion, including the assumption of certain Axiall liabilities, which include approximately $1.5 billion of debt outstanding as of the end of September 2015.

But just because Westlake was rejected this time does not mean it will not try again. Perhaps a hostile takeover could be in the cards.

Albert Chao, Westlake’s president and CEO, commented:

We are surprised and disappointed by Axiall’s summary rejection of our proposal, which provides Axiall shareholders with a significant premium and upside potential via their participation in the increased scale and synergies of the combined company. The combined company would be more diversified and have a stronger financial profile than Axiall, providing it with significant financial and operational flexibility, a greater ability to serve its customers, and improved ability to capitalize on future investment opportunities.

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He added:

We are confident that our proposed transaction represents the best way to maximize value for Axiall shareholders, but despite the attractiveness of our proposal, Axiall has rejected the proposal and refused to engage with us to discuss its merits. Instead, Axiall said it prefers to pursue a standalone strategic plan, but the market reaction to this plan does not suggest it will deliver anywhere near the value and upside of our proposal. In this challenging environment, we believe Axiall’s unwillingness to even discuss our compelling proposal exposes its shareholders to significant risk and uncertainty. Given this response, we feel we have no choice but to bring this proposal to the attention of Axiall shareholders.

Shares of Westlake were last seen trading down roughly 6% at $43.76, with a consensus analyst price target of $61.64 and a 52-week trading range of $40.44 to $79.25.

Axiall shares were up over 86% at $18.28, with a consensus price target of $19.80 and a 52-week range of $9.04 to $51.35.