Bloomberg News

Georgia Gulf Rejects Westlake’s Increased $1.2 Billion Offer

February 01, 2012

(Updates with closing share prices in fourth paragraph.)

Feb. 1 (Bloomberg) -- Georgia Gulf Corp., North America’s largest maker of vinyl construction products, rejected a sweetened $1.2 billion unsolicited takeover offer from Westlake Chemical Corp. as too low.

Westlake raised its offer by 17 percent to $35 a share, from the prior $30 bid, the Houston-based company said today in a statement. Georgia Gulf said in a filing it rejected the higher offer made on Jan. 27 and its “true intrinsic value” is “well above prevailing stock market prices.”

Westlake Chief Executive Officer Albert Chao, whose family controls about 69 percent of the company, is seeking to integrate Westlake’s resin and pipe production with Georgia Gulf’s chemicals and vinyl lines. The combination would be the second-largest North American maker of polyvinyl chloride, or PVC, used in plastic pipe and siding.

Georgia Gulf rose 0.1 percent to $35.08 in New York. Westlake climbed 2.6 percent to $59.95.

Chao said Westlake won’t nominate directors for Georgia’s Gulf board because it wants to start friendly negotiations. Talks could begin if Chao lifts objections to signing standstill and confidentiality agreements, Georgia Gulf CEO Paul Carrico said in the filing.

“It is your continuing entrenched approach on this point that prevents discussions from moving forward,” Carrico said. “We are ready and willing to enter into substantive good faith discussions.”

’Not Committed’

Chao’s decision to rule out a proxy fight for control of Georgia Gulf’s board raises questions about his commitment to the takeover, said Yemi Oshodi, managing director of M&A and special situations trading at New York-based WallachBeth Capital LLC. The latest bid is still too low to draw Georgia Gulf into negotiations, he said.

“Chao is not a committed buyer,” Oshodi said in a telephone interview. “A committed buyer comes in and says, ‘we are willing to do what it takes to get this job done.’ Mr. Chao is not saying anything that even resembles this.”

Chao also said Westlake is willing to pay for the deal partly in stock so that shareholders of Georgia Gulf can share in the value created by the merger.

“If the current Georgia Gulf board is unwilling to proceed based on our premium $35 proposal, we would be prepared to negotiate with a board that more closely reflects the views of Georgia Gulf’s shareholders -- many of whom favor moving forward with a combination of Georgia Gulf and Westlake,” Chao said a letter to Georgia Gulf’s board, which was included in the Westlake statement.

Competing Bids?

Even if Westlake doesn’t succeed, its bid could draw a competing offer, stopping the shares from falling back to less than $25 or $30, Oshodi said.

Brazil’s Braskem SA, Taiwan’s Formosa Plastics Corp., and Shintech, a unit of Japan’s Shin-Etsu Chemical Co., could make bids, Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said today in a note. The three companies have products that overlap with Georgia Gulf, he said. Shintech is North America’s largest PVC maker.

Georgia Gulf narrowly averted bankruptcy after acquiring building products maker Royal Group in 2006, at the start of the worst housing slump since the Great Depression. Georgia Gulf is now poised to post record sales, according to analysts’ estimates, as confidence among U.S. homebuilders rises to a four-year high.

Poison Pill

Westlake first approached Georgia Gulf with its initial proposal on Sept. 30 and went public on Jan. 13. The sweetened $35-a-share offer values Georgia Gulf at 7.1 times its earnings before interest, taxes, depreciation and amortization in the last 12 months, data compiled by Bloomberg show. That’s less than at least 13 completed takeovers of diversified chemicals producers valued at $1 billion or more in the past 15 years, the data show.

Georgia Gulf has adopted a stockholder rights plan, also known as a poison pill, that allows existing shareholders to buy stock at a discount once a suitor acquires more than 10 percent of the outstanding shares.

The value of the increased offer was calculated based on the 34.2 million shares of Georgia Gulf that are outstanding according to data compiled by Bloomberg. Westlake said Jan. 13 it had acquired 4.8 percent of Georgia Gulf.

--Editors: Simon Casey, Charles Siler

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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