Brigade Capital Letter To Axiall Corp
Funds managed by Brigade Capital Management, LP (“Brigade”) beneficially own approximately 2% of the common stock of Axiall Corporation (“Axiall” or the “Company”). As a significant owner of Axiall shares, we feel it is important to have an open dialogue with the Company so that views and ideas can be exchanged.
On January 29, 2016, Westlake Chemical Corporation (“Westlake”) announced that it made a proposal to acquire all of the Company’s outstanding shares for $20 per share ($11 per share in cash and $9 per share in Westlake stock).
We trust that Axiall’s review of the Westlake proposal was – and that its deliberations regarding any subsequent third party proposals or other alternatives will be – guided solely by your views as to what is in the best interests of Axiall’s shareholders. We believe that fiduciary duties mandate that you act in a manner that is designed to maximize the value of the Axiall stock for the benefit of the shareholders, whether with respect to the Westlake proposal or any other possible bidder or transaction.
While we too deem Westlake’s $20 per share offer as inadequate, we are disappointed that Axiall did not engage more fully in substantive discussions in order to determine whether an improved offer could be negotiated. Given the significant underperformance of Axiall shares over the last 12 months and the recent Westlake proposal, Brigade asks that the board immediately establish a strategic review committee and/or process (comprised of independent directors) that should include, among other things, very serious consideration of a potential sale of the entire Company. We also ask that the Company promptly engage in good faith discussions with Westlake, with a goal of negotiating a fair price for Axiall shareholders.
Brigade’s investment in Axiall equity is based on (1) a favorable cyclical outlook for chloralkali and vinyls (together, chlorovinyls), which we expect to improve off of trough conditions over the next two to three years, (2) the significant undervaluation of the Company’s shares, which are trading at depressed multiples of replacement value and cash flow, (3) the sizable self-help opportunities currently available to the Company given its sub-par performance relative to best-in-class peers (e.g., the Company’s employee productivity is a mere fifth, and its fixed asset productivity is only 60% that of the industry leader), and (4) the potential for transformative combinations that would improve prospects for the industry, including Axiall.
Brigade believes that the combination with Westlake is logical (at the right price) because (1) it brings together two major North American chlorovinyls players with the potential to fully back integrate into raw materials, coupled with Westlake’s investment grade balance sheet, (2) it improves the industry structure and sets the stage for greater earnings stability across the cycle for the combined entity, and (3) it transfers underperforming assets to an acknowledged efficient operator.
Although the current proposal undervalues Axiall on a standalone basis, not to mention its value to Westlake once synergies are accounted for, the proposed structure does offer the benefit of allowing Axiall shareholders to participate in the cyclical recovery via ownership in the combined entity.
In this regard and importantly, we oppose the use of so-called “poison pills” or other similar impediments that may serve to prevent shareholders from considering whether to accept a potentially value enhancing proposal. Please note that Brigade reserves all its rights should Axiall choose not to comply with our requests.
We look forward to further productive dialogue with you.