On Jan. 28, 2013, a long-awaited merger between a spun-off commodity chemicals unit of PPG Industries, Inc. (NYSE:PPG) and Georgia Gulf Corporation (GGC – defunct) became official. Valued at $2.1 billion, the deal created a company that is expected to produce revenues of $5 billion or more per year and become a major player in the commercial chemicals business. Known as Axiall Corp (NYSE:AXLL), the company appears to be off to a promising start on the public markets. Since its inception, it has exhibited market-beating performance and looks well-positioned for future growth.
PPG is one of the leading manufacturers of practical and decorative laminates, coatings and other synthetic materials. The company is a major producer of rust-resistant coatings for the automotive and transportation industries. It also produces reflective coverings for signs and road markers. Since many of PPG’s coatings adorn military equipment, vehicles, and aircraft, a significant portion of its revenue comes from the aerospace and defense industries. However, it is not seen as particularly vulnerable to cuts in U.S. defense spending thanks to its deep roster of civilian customers. PPG Industries, Inc. (NYSE:PPG) maintains a responsive direct-sales team and also sells its products to a variety of international retailers and wholesalers.
Axiall was created by the merger of PPG’s commodity chemicals unit and the Georgia Gulf Corporation. The company is expected to produce revenues of over $5 billion and engage in the production of a variety of commonly-used solvents, chemicals and VOCs. Its signature products include chlorovinyl compounds like PVC resins, caustic soda, and common chlorine, as well as aromatics like acetane and cumene. It also engages in the production of a wide range of flexible, rigid, and liquid compounds that can be used in a variety of residential, commercial and industrial applications. Many of its chemicals are marketed under the Royal Group Technologies brand. Axiall employs at least 10,000 workers across North America.
One of Axiall’s competitors is the The Dow Chemical Company (NYSE:DOW). Dow is much larger than Axaill and produces a much wider range of products. Dow has a $40 billion market cap and revenues of over $56 billion in the last 12 months. Axiall Corp (NYSE:AXLL) is likely to be a more profitable company on a relative basis and have a higher profit margin that Dow’s 2%, but we have yet to find out the profitability of the combined unit. Analysts are expecting Dow’s earnings to grow substantially in the next 12 months.
How the Deal Was Structured
The terms of this deal were rather complex. First, PPG Industries, Inc. (NYSE:PPG) spun off its commodity chemicals division as a publicly-traded intermediary known as Eagle Spinco. All PPG shareholders were given the option to swap each PPG share for 3.2562 Eagle Spinco shares. Those who took advantage of this opportunity were then provided with Georgia Gulf shares on a one-to-one basis. After Georgia Gulf’s stock ceased to trade, these new shareholders were provided with “new” shares in Axiall. As part of the deal, PPG also received a cash payment of $900 million.
