The gloves are coming off in Westlake-Axiall proxy fight
Westlake CEO Albert Chao claims that “Axiall is continuing to pursue a value-destroying standalone strategy.”
by Claire Poole
Westlake Chemical Corp. on Monday said it would launch a proxy fight to replace the board of vinyl building products maker Axiall Corp. after Axiall rejected its 16.7% sweeter $3.1 billion takeover bid.
The new offer includes $14 in cash and 0.1967 of a Westlake share for each Axiall share valued at $23.35 per share. The proposal represents a 143% premium over Axiall's closing trading price on Jan. 20 of $9.60 before Houston-based Westlake made its original $20 per share offer.
The $3.1 billion total includes the assumption of around $1.5 billion in debt at the end of last year.
In a letter to Axiall shareholders, Westlake CEO Alberto Chao said he had "deep concerns" regarding Axiall's rejection of Westlake's increased acquisition proposal. "I believe this rejection is not in your best interests and Axiall's unreasonable position is putting at risk the benefits you would receive from this financially and strategically compelling transaction," he said.
Chao added that Westlake's increased proposal was based on due diligence that Atlanta-based Axiall "finally allowed us to conduct" having heard directly from shareholders that they should negotiate a transaction with Westlake.
"Unfortunately, despite the compelling nature of this revised proposal and the clear views of many shareholders who want a transaction, Axiall summarily rejected it based on what we view as their totally unrealistic assessment of Axiall's value and future prospects and the combined company's synergies," he said. "Based on these flawed assumptions, Axiall demanded a 'substantially increased proposal value' and refused to make a counter-proposal or otherwise negotiate or provide any constructive feedback."
Chao said nothing has changed in Axiall's outlook that would lead to a standalone valuation "anywhere near the value of our proposal" and claimed that Axiall has consistently overestimated its business' earnings power and has a track record of failing to deliver on its operational and strategic objectives.
"Our increased proposal provides Axiall shareholders with a significantly higher premium, greater certainty through the increased cash consideration of $14 per share and continued upside potential and sharing of synergies via ownership in the combined company," he said. "Given the Axiall board's unrealistic expectations and entrenched position, we feel we have no choice but to proceed today with a proxy contest to replace Axiall's directors with new independent and highly-qualified directors who are willing to evaluate all options in accordance with their fiduciary duties."
Chao claimed Axiall is continuing to pursue a value-destroying standalone strategy, including the sale of its building products assets, which he's worried will negatively impact its remaining businesses given that they're highly integrated with the rest of the company. He said Axiall didn't initially ask Westlake to participate in the building products sales process and only did so after it made shareholders "aware of the omission."
Axiall shareholders urging the company to explore options include Franklin Advisory Services, Shapiro Capital Management Co. Inc. and Brigade Capital Management LP.
Axiall, which is led by CEO Tim Mann, rejected Westlake's previous offer in January, calling the bid "an opportunistic attempt" to take advantage of temporary weakness in its share price. It argued that its own in-house restructuring was the better option, including a plan to cut $100 million in costs and look at options for its building products and aromatics segments.
In February Axiall said it had a deal in place to sell two sets of assets to Galata Chemicals Inc. and private equity firm OpenGate Capital LLC for $41 million.
Westlake threatened the proxy fight in February, saying it intended to nominate a slate of 10 candidates to Axiall's board, including former Arch Chemicals Inc. CEO Michael Campbell, one-time Westlake CFO and current Lion Chemical Capital LLC managing director Ruth Dreessen and previous Nova Chemicals Inc. CEO Randy Woelfel.
It is Westlake's second hostile run at Axiall, which successfully fought off an unsolicited $1.3 billion bid in 2012.