Westlake Chemical Looks to More Long-term Ethylene Opportunities after Axiall Acquisition

Researched by Industrial Info Resources (Sugar Land, Texas)--Even with two significant expansions planned or under way and the pending acquisition of a share in a grassroot ethane cracker, executives with Westlake Chemical (NYSE:WLK) (Houston, Texas) say they're still open to further strengthening the company's U.S. ethylene position in the long term.

Chief Executive Officer Albert Chao said during a conference call Friday that the company's ongoing strategy is to continue integrating its olefins and vinyls chain businesses. Westlake completed an ethylene de-stock conversion and expansion project in Calvert City, Kentucky, in the first half of 2014, Chao noted, and has another expansion (70 million pounds per year) there planned for 2017. "That, along with smaller improvements, will have added some additional 100 million pounds ethylene capacity to Calvert City by 2017," he said. The company is now working to complete a 250,000 pound-per-year expansion at its Petro 1 unit in Lake Charles, Louisiana, which, "when combined with our Calvert City expansion, will give us total of 350 million pounds of new ethylene capacity by 2017."

Scheduled for completion in mid-2017, the Calvert City expansion has a total investment value of $70 million. The Petro 1 expansion in Louisiana is valued at $330 million, with completion expected this summer. For related information, see February 24, 2016, article: Westlake Expects to Wrap Up Big Ethylene Expansions in 2016, 2017.

On top of all that, Westlake announced last week that it had at last clinched the acquisition of chlor-alkali and aromatics producer Axiall Corporation (NYSE:AXLL) (Atlanta, Georgia), in a deal worth $3.8 billion, including Axiall's share in a 1 million metric ton-per-year grassroot ethylene facility located in Westlake, Louisiana. The ethylene facility is a joint venture with Lotte Chemical (Seoul, South Korea), which also had shown interest in acquiring Axiall, according to news accounts. Most of the ethylene produced by the plant will supply a $1 billion monoethylene glycol (MEG) plant to be operated by Lotte. In addition, the plant will provide nearly half of the total ethylene used by Axiall for its existing manufacturing facilities at the site. For related information, see December 22, 2015, article - Axiall, Lotte Plant Spearheads Second Wave of Ethylene Projects.

Even taking in half of the ethylene from the Lotte joint venture project, the Axiall business there will still be short of ethylene, Chao said Friday.

"As of now, Axiall is buying ethylene and so, eventually we will be balanced or excess for short-term," he told investment analysts. "In the long-term, we look at debottlenecking, purchasing ethylene, potential JV [joint venture] purchasing assets, many other alternatives."

Westlake's acquisition of Axiall is expected to be finalized by the fourth quarter of this year. It would create the third-largest chlor-alkali producer and the second-largest polyvinyl chloride producer in North America, according to the companies, with annual cost synergies of about $100 million.

Subject to Axiall shareholders' approval, Westlake will buy all outstanding Axiall shares for $33 per share, up substantially from its initial $20-per-share offer in January. For most of this year, Axiall had resisted Westlake's overtures. In turn, Westlake took its case to Axiall's shareholders in an effort to have them replace Axiall's board of directors with one more acquisition friendly. Now that a deal has been reached, Westlake will drop its drive to replace Axiall's board of directors. Westlake had first attempted to acquire Axiall in 2014.

Westlake executives said they would review the capital expenditure programs of both companies as the acquisition progresses.

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