AXLL – Expect a Sale Eventually – Stock Could Drop if WLK Suspends Interest


Since the publication of the most recent AXLL defense document 10 days ago, there has been (public) radio silence from WLK regarding the rejected WLK bids. Axiall seem confident that they can win a proxy fight, or at least keep the majority of their board seats and are choosing to do this rather than deal with Westlake. It seems apparent that Westlake are willing and ready to go to a next stage of due diligence to fine tune a possible synergy number and a better bid. At the same time, it appears that Axiall will not let Westlake do that next level of due diligence.

So what gives? It is possible that Axiall believes in a “go it alone” strategy, but we would be very skeptical given what the company has said publicly. So this is either a convoluted negotiating tactic with Westlake (one we struggle to understand), or Axiall does indeed have another possible bidder and is dragging things out – possibly through the shareholder meeting to get that deal done. This all sounds good if you are an Axiall holder as today you are back-stopped by the Westlake offer, with the possibility of something better.

However, Westlake is not going to sit on its hands – we know the company too well and this is not what they do. One of two things is likely to happen very near term and certainly before June 16. Either WLK will produce its own – compelling – presentation, stating the value of the deal and taking issue with the obvious cracks in Axiall’s arguments, and effectively demanding an opportunity to continue with due diligence – OR – they will pull the offer – something they have done in the past: keep the proxy fight and the board nominations, but take the current deal off the table, with the goal of revisiting a possible deal once the potential new board is in place. The fact that we have not seen a response from WLK to AXLL’s last presentation yet makes us think that pulling the offer may be more likely.

Absent anything else from AXLL, if WLK pulls the offer AXLL stock will likely drop a minimum of 30% and possibly as much as 40%. Interestingly this might then add momentum to WLK’s argument for a new board of directors.

It is very hard to weight the probability of the outcomes here – except that we believe that AXLL will be sold for a price north of $25 per share – eventually – either to WLK or someone else. However, if WLK chooses to take the tactic of pulling its offer ahead of the shareholder vote, with the clear statement that it wants to re-engage with the new team later, we could get a dramatic pull back in the stock near-term – bad news for current holders short term but likely creating a great entry point.

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