Lotte Chemical Corp is bidding for US chemicals maker Axiall Corp and Hanwha Chemical Corp flagged a likely US deal, as cash-flush South Korean chemicals firms target acquisitions in a hunt for new revenue streams.
Asian chemicals firms have seen their profits surge in the last couple of years as the slide in oil prices has slashed their input costs, leaving them with surpluses to invest.
Lotte Chemical, which plans to produce ethylene in the United States in a joint venture with Axiall, announced the initial offer yesterday, coming in as a potential white knight for the $1.6bn firm that is resisting a takeover attempt by Westlake Chemical Corp.
Lotte Chemical did not provide any terms.
Separately, Hanwha Chemical said its unit had submitted a letter of intent to buy US-based automotive materials supplier Continental Structural Plastics, in a deal media reports said could fetch $600mn.
In March, crosstown rival LG Chem said it was looking at more acquisitions of agriculture-chemical firms after its $430mn purchase of Dongbu Farm Hannong.
“As they have seen cash swelling in the past couple of years Korean chemicals firms are now on an expansion mode in search of new growth engines,” said Han Seung-je, an analyst at Dongbu Securities.
Lotte Chemical, part of hotel-to-retail conglomerate Lotte Group, said Axiall generated at least 2tn won ($1.72bn) in cash per year, and that it was considering various methods to finance the acquisition, including cash.
Axiall, which also makes building products, rejected in April Westlake’s $3.1bn buyout proposal, which included $1.5bn in assumed debt, prompting Westlake to seek the replacement of Axiall’s board.
“Lotte Chemical will be seen as a white knight for Axiall,” said Park Young-hoon, an analyst at LIG Investment & Securities.
Lotte Chemical said the proposed takeover would help diversify its product portfolio and secure a stable customer base in North America for the US cracker joint venture.
Axiall’s response to Lotte Chemical’s offer was not immediately known.
A call to Axiall’s US office outside normal business hours was not answered.
Lotte Chemical’s shares ended down 3.5% yesterday, its lowest closing since January, weighed down by concerns about the price of a possible acquisition.
Axiall shares last traded at $23.30, giving it a market value of $1.64bn.
Late last month, Axiall said it was in talks with third parties on options including the possible sale of the entire company.
Lotte Chemical’s operating profit rose 166% in the first quarter, while Hanwha Chemical’s profit soared 457% during the period.