Earlier today it was announced that Georgia Gulf Corp. (GGC) competitor, Westlake Chemical (WLK), submitted a proposal to acquire the company for $30/share. As of the previous day's close this represented a premium of 22.5%, however at the open the stock shot higher and trades currently around $33/share with shareholders believing the company is worth more and that a second offer will be made.
To get a better idea of the value of GGC, I've done a discounted cash flow analysis using current analyst estimates to get an idea of what the company's forward earnings look like. The DCF analysis inputs were the consensus analyst estimates for earnings of $2.39/share for 2012 and consensus earnings growth estimates of 6.5% over the next five years. Moving forward, the company looks to have earnings power in the future of $20.03 share, using a 20% discount rate based on the company's outstanding bonds and the stock's beta. If we incorporate the shareholder equity from the balance sheet of the most recent quarter, the company exhibits an intrinsic value of $34.66/share.
It is based on this analysis that it is my belief that GGC shareholders should reject the acquisition proposal and wait for a second offer. In the meantime I would wait to see how the news plays out as the risk/reward to purchase the stock now seems unfavorable.
Balance sheet information obtained through Morningstar.