Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

How quickly the tide can turn. All it takes is money.

Shareholders of Axiall were set to vote next week on whether to replace the company's board. Behind the new slate of directors was Westlake Chemical, which had resorted to a proxy battle after being stymied in a months-long attempt to acquire the maker of vinyl products. Axiall said Westlake's offers were too low, and sought other buyers.  

But then on Friday, the two companies said that they had struck a friendly deal. The game-changer? Cash: Houston-based Westlake upped its bid (something I suggested back in April could make a deal happen) to $33 a share. That's a 41 percent premium to its most recent cash-and-stock offer and 65 percent above its original proposal, a bump so large it could only have been spurred by one thing: competition. 

Bump it Up
Third time's the charm for Westlake, whose bid bested that of South Korea's Lotte Chemical
Source: Bloomberg

Axiall shareholders partly have South Korea's Lotte Chemical to thank for Westlake's decision to reach deeper into its pockets and cough up $3.8 billion (including the assumption of debt). Lotte confirmed earlier this week that it had made an offer for Axiall, and while the terms weren't disclosed, analysts calculated it to be around $27.40 a share. 

One metric on which Westlake and Axiall seemed to have found a middle ground was synergies, which the former expects to be $100 million per year. That's not quite a midpoint of the previous Axiall forecast of $270 million (which it argued justified a higher offer price) and Westlake's initial "more than $60 million" estimate. But it seems fairly conservative and provides room for positive future earnings surprises. 

Signed, Sealed, Delivered
The combined company is expected to have better scale and product diversity.

For what it's worth, Westlake's shareholders appear supportive of the company's biggest-ever acquisition, with shares edging more than 2 percent higher in early afternoon trading. The company will have the third-biggest chlor-alkali production capacity among North American rivals (behind Olin and Occidental Petroleum's OxyChem), giving it a better chance of capturing demand from Europe, where local mercury-based supply is set to be scrapped by 2020.  

Plus, by becoming North America's second-largest producer of PVC (from individual positions of fourth and sixth, respectively) behind Shintech, the combined company can better capitalize on the rising demand for the "poor man's plastic" that Westlake's CEO expects to come from developing nations. 

Considering how strategic the acquisition is for Westlake, it may have come together without Lotte throwing its hat in the ring. But there's nothing like the fear of losing a coveted asset to prompt a buyer to do what it takes (or pay what it must) to seal a deal. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net