Westlake Chemical Corp. (WLK), the U.S. plastics maker controlled by the Chao family, made a $1.03 billion unsolicited offer for Georgia Gulf Corp. (GGC) to expand into vinyl construction products such as siding and window frames.
The $30-a-share bid isn’t subject to any financing condition, Houston-based Westlake said today in a statement. The offer is 55 percent above Georgia Gulf’s 20-day trading average prior to today. Westlake said it made its initial proposal on Sept. 20 and hasn’t been able to begin a “meaningful dialogue” despite “numerous attempts to engage” with Atlanta-based Georgia Gulf.
“We urge the Georgia Gulf board to act in the best interests of its shareholders by meeting with us to seriously discuss our compelling proposal,” Westlake Chief Executive Officer Albert Chao said in the statement.
Chao, whose family owns 69 percent of Westlake, is seeking to integrate his resin and pipe production with Georgia Gulf’s chemicals and vinyl product lines. Westlake is benefiting from declining prices for natural gas, used as a raw material for its plastics and other chemicals. Georgia Gulf’s earnings have been hurt by weak construction demand for its building products.
“The deal makes strategic sense,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said today in a telephone interview. “The product overlap is fabulous.”
“Georgia Gulf is aware of the offer and will respond in due course,” Alan Chapple, a company spokesman, said by telephone. He declined to comment further.
Georgia Gulf jumped 35 percent to $33.09 as of 12:24 p.m. in New York. Westlake gained 0.9 percent to $51.69. Westlake said it already acquired 4.8 percent of Georgia Gulf.
Westlake’s offer values Georgia Gulf at 6.4 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. The median Ebitda multiple in 17 comparable deals was 8.8, the data show.
Georgia Gulf, North America’s largest maker of vinyl construction products, narrowly averted bankruptcy when the housing slump cut demand. Bondholders agreed in July 2009 to exchange 92 percent of company notes for new equity while existing shareholders were diluted with a 1-for-25 reverse stock split.
Westlake’s offer may be well-timed for an improvement in the U.S. housing market, Ahmed said. Lennar Corp., the country’s third-largest homebuilder, said Jan. 11 it had a 20 percent jump in new orders during the fourth quarter.
“If we are coming out of a trough, probably this is a good time to be betting on some kind of housing recovery,” Ahmed said.
The acquisition would mean Westlake doesn’t need to pursue a planned $300 million expansion of chlorine and caustic soda production because Georgia Gulf has 1 billion pounds of annual capacity, Ahmed said. He rates Westlake “overweight” and doesn’t rate Georgia Gulf.
Westlake, which was founded in 1986, had $758.9 million of cash and $764.5 million of long-term debt as of Sept. 30, according to data compiled by Bloomberg. Georgia Gulf had $45.3 million of cash and $896.3 million in long-term liabilities, the data show.
JPMorgan Chase & Co. is Georgia Gulf’s largest stockholder with an 18 percent stake as of Sept. 30, according to data compiled by Bloomberg.
Westlake’s financial advisers are Deutsche Bank AG and Morgan Stanley and its legal advisers are Vinson & Elkins LLP and Morris, Nichols, Arsht & Tunnell LLP.
The value of the offer is calculated based on the 34.2 million shares of Georgia Gulf that are outstanding according to data compiled by Bloomberg.
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