Lotte may consider themselves the “White Knight” for Axiall, but unless they are riding a very big horse and have very large amounts of money in the saddle bags, this story may be far from over.
A stock bid from Lotte will not work unless it is a unique “dual listing” construct with a huge premium (there are likely no synergies in this deal). A cash bid from Lotte has to offer a premium to any recent WLK offer to reflect some or all the following:
- The synergies which would accrue to Axiall holders because of their new holding in WLK
- The “value” of a more diverse portfolio – WLK plus AXLL – although shareholders could always buy a more diverse portfolio.
- Possible tax implications of an all cash versus a stock plus cash offer.
- The widely held view that WLK is a better operator than AXLL (notwithstanding recent improvements at AXLL), leading to more EPS/EBITDA upside than just the synergies
- A possible opportunity to rationalize the chlor-alkali or PVC markets through consolidation, which may also have a positive valuation impact for WLK holders.
We are assuming that WLK provided AXLL with a revised offer last week, or perhaps they simply re-affirmed the old one. Today the old one is worth around $25 per AXLL share if you assume that an Axiall share would see roughly 20 cents of synergy and give it a 10x multiple. This only accounts for the first of the bullet points above.
If a cash offer from Lotte offers little more than WLK is offering (no terms are public at the time of writing) then shareholders should encourage WLK to press on – push for the shareholder vote on board members and look for a fair “auction” process from whichever slate of directors is elected.
We would want to see a cash offer from Lotte approaching $30 per share before we would encourage WLK to call it a day. We would still own AXLL – this is not over!
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