19 July 2012 | Ernest Scheyder
Georgia Gulf doubles in size with PPG chlorine deal
(Reuters) – Georgia Gulf Corp GGC.N struck a deal to buy PPG Industries Inc’s (PPG.N) commodity chemicals business for $2.1 billion, nearly doubling its size just months after rejecting a buyout offer from Westlake Chemical Corp (WLK.N).
The deal, announced Thursday, will make Georgia Gulf the third-largest producer of chlorine and caustic soda in North America. Dow Chemical Co DOW.N is the largest.
The spinoff will help PPG narrow its focus on performance coatings and industrial coatings, which make up more than half of its sales. PPG also makes the popular Transitions line of eyeglasses.
Georgia Gulf shares jumped 16 percent in afternoon trading while shares of PPG rose 5.2 percent.
Paul Carrico, Georgia Gulf’s chief executive, said in an interview he is optimistic about demand for chlorine and caustic soda for the next few years and believes cheap, shale-derived natural gas will help bolster margins.
When chlorine is mixed with ethylene, which can be derived from shale gas, it creates a chemical that can be turned into polyvinyl chloride, commonly known as PVC, a plastic used in construction. Having cheap supply of ethylene helps keep costs low for Georgia Gulf and its peers.
Chlorine and caustic soda can also be used to make flooring, detergents and paints, among many other products.
Shale gas “is an amazing turn of events for the chemical industry in North America,” Carrico said. “It all goes back to costs.”
Even if demand for Georgia Gulf products in North America continues to lag, Carrico said he is confident exports of chlorine and caustic soda can make up the difference.
PPG has been trying to sell the chlorine and caustic soda business for years to focus on its paint divisions, but previous bidders could not meet the price PPG was asking, said Telly Zachariades, a chemical industry mergers and acquisition specialist at the Valence Group who is not involved in the deal.
“It’s a good deal for both sides,” he said. “This really is Georgia Gulf’s core business.”
PPG also reported higher second-quarter earnings on Thursday.
Georgia Gulf snubbed a $1.9 billion takeover offer from commodity chemicals maker Westlake Chemical in May, saying it could produce more value for investors on its own.
Analysts see a move toward consolidation among chemical companies, given their cushy cash balances.
Olin Corp (OLN.N) on Wednesday agreed to buy privately held K.A. Steel Chemicals Inc for $328 million to bulk up production of chlor-alkali chemicals.