Acquisition

On August 31, 2016, the Company completed its acquisition of, and acquired all the remaining equity interest in, Axiall Corporation ("Axiall"), a Delaware corporation. Prior to the acquisition, the Company held 3.1 million shares in Axiall. Pursuant to the terms of the Agreement and Plan of Merger, dated as of June 10, 2016, by and among Westlake, Axiall and Lagoon Merger Sub, Inc., a Delaware corporation that is a wholly-owned subsidiary of Westlake ("Merger Sub"), the Company acquired all of the remaining issued and outstanding shares of common stock of Axiall for $33.00 per share in cash. Pursuant to the Merger Agreement, Merger Sub was merged with and into Axiall and Axiall survived the merger as a wholly-owned subsidiary of the Company (the "Merger"). The combined company is the third-largest global chlor-alkali producer and the third-largest global polyvinyl chloride ("PVC") producer. The Company's management believes that this strategic acquisition will enhance its strategy of integration and will further strengthen its role in the North American markets.

Axiall produces a highly integrated chain of chlor-alkali and derivative products, including chlorine, caustic soda, vinyl chloride monomer ("VCM"), PVC resin, PVC compounds and chlorinated derivative products. Axiall also manufactures and sells building products, including siding, trim, mouldings, pipe and pipe fittings.

Total consideration transferred for the Merger was $2,539,360. The Merger was accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of the acquired business are included in the Company's Vinyls segment.

For the nine months ended September 30, 2016, the Company recognized $90,550 of transaction and integration-related costs. This included acquisition-related costs of $43,895 for advisory, consulting and professional fees and other expenses during the nine months ended September 30, 2016. Transaction and integration-related costs also included $46,655 during the nine months ended September 30, 2016 related to the settlement of Axiall share-based awards, retention agreement costs and severance benefits provided to former Axiall employees in connection with the Merger.

The following table summarizes the consideration transferred and the estimated fair value of identified assets acquired and liabilities assumed at the date of acquisition. The allocation of the consideration transferred is based on management's estimates, judgments and assumptions. When determining the fair values of assets acquired, liabilities assumed and noncontrolling interests of the acquiree, management made significant estimates, judgments and assumptions. Management estimated that consideration paid exceeded the fair value of the net assets acquired. Therefore, goodwill of $942,096 was recorded. The goodwill recognized is primarily attributable to synergies related to the Company's vinyls integration strategy that are expected to arise from the Merger. All of the goodwill is assigned to the Company's Vinyls segment. As a portion of the goodwill arising from the Merger is attributable to foreign operations, there will be a continuing foreign currency impact to goodwill in the consolidated financial statements.



	Final Purchase Consideration as of August 31, 2016
Closing stock purchase:
Offer per share	$	33.00
Multiplied by number of shares outstanding at acquisition (in thousands of shares)	67,277
Fair value of Axiall shares outstanding purchased by the Company	2,220,141
Plus:
Axiall debt repaid at acquisition	247,135
Seller's transaction costs paid by the Company ⁽¹⁾	47,458
Total fair value of consideration transferred	2,514,734

Fair value of Axiall share-based awards attributed to pre-combination service ⁽²⁾	11,346
Additional settlement value of shares acquired	13,280
Purchase consideration	2,539,360

Fair value of previously held equity interest in Axiall ⁽³⁾	102,300
Total fair value allocated to net assets acquired	$	2,641,660

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(1)	Transaction costs incurred by the seller included legal and advisory costs incurred for the benefit of Axiall's former shareholders and board of directors to evaluate the Company's initial Merger proposals, explore strategic alternatives and negotiate the purchase price.


(2)	The fair value of share-based awards attributable to pre-combination service includes the ratio of the pre-combination service performed to the original service period of the Axiall restricted share units and options, including related dividend equivalent rights.


(3)	Prior to the Merger, the Company owned 3.1 million shares in Axiall. The investment in Axiall was carried at estimated fair value with unrealized gains recorded as a component of accumulated other comprehensive loss in the consolidated balance sheet. The Company recognized a $49,080 gain for the investment in other income, net in the consolidated statements of operations upon gaining control.

The following table summarizes the purchase price allocation:



	Net Assets Acquired as of August 31, 2016
Cash	$	88,251
Accounts receivable ⁽¹⁾	422,274
Income tax receivable	50,980
Inventories ⁽²⁾	349,205
Prepaid expenses and other current assets	55,462
Property, plant and equipment ⁽²⁾	2,942,162
Customer relationships (weighted average lives of 9.8 years) ⁽³⁾	670,000
Other intangible assets:
Trade name (weighted average lives of 6.8 years)	50,000
Technology (weighted average lives of 5.4 years)	41,500
Supply contracts and leases (weighted average lives of 6.3 years)	27,288
Other assets	93,875
Total assets acquired	4,790,997
Accounts and notes payable	254,041
Interest payable	8,154
Income tax payable	1,607
Accrued compensation	44,186
Accrued liabilities	154,290
Deferred income taxes ⁽⁴⁾	958,304
Tax reserve non-current	3,130
Pension and other post-retirement obligations	311,106
Other liabilities	101,325
Long-term debt	1,187,290
Total liabilities assumed	3,023,433
Total identifiable net assets acquired	1,767,564
Noncontrolling interest	(68,000		)
Goodwill	942,096
Total fair value allocated to net assets acquired	$	2,641,660

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(1)	The fair value of accounts receivable acquired was $422,274, with the gross contractual amount being $434,834. The Company expects $12,560 to be uncollectible.


(2)	The Company obtained additional information related to its inventories and property, plant and equipment which led to an increase in inventories of $43,047, a decrease in property, plant and equipment of $192,579 and a corresponding increase in goodwill of $149,532 compared to the estimated fair values included in the 2016 Form 10-K.


(3)	The Company obtained additional information related to its customer relationship balances which led to an increase in customer relationships of $80,000 and a corresponding decrease in goodwill compared to the estimated fair values included in the 2016 Form 10-K.


(4)	Decreases in the estimated fair values of identified assets acquired led to a decrease in deferred income taxes of $26,824 compared to the estimated fair values included in the 2016 Form 10-K.

The pro forma information for the nine months ended September 30, 2016 was as follows:



	Pro Forma Nine Months Ended September 30, 2016
Net sales	$	5,345,365
Net income ⁽¹⁾	$	277,567
Net income attributable to noncontrolling interest	16,404
Net income attributable to Westlake Chemical Corporation ⁽¹⁾	$	261,163
Earnings per common share attributable to Westlake Chemical Corporation
Basic	$	2.01
Diluted	$	2.00

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(1)

The pro forma net income amounts include Axiall's historical charges recorded during the eight-month period prior to the closing of the Merger for (1) divestitures; (2) restructuring; and (3) legal and settlement claims, net, of $26,666, $22,881 and $23,376, respectively. These amounts have not been eliminated for pro forma purposes because they do not relate to nonrecurring, transaction specific costs related to the Merger.

The pro forma amounts above have been calculated after applying the Company's accounting policies and adjusting the Axiall results to reflect (1) the increase to depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2016; (2) the elimination of net sales and cost of sales between the Company and Axiall; (3) additional pension service costs; (4) amortization of debt premium and accretion of asset retirement obligations and environmental liabilities as part of the Company's adjustments to fair value; (5) incremental interest expense that would have been incurred assuming the financing arrangements entered by the Company and repayment of a portion of Axiall's outstanding debt had occurred on January 1, 2016; (6) the elimination of transaction-related costs; and (7) an adjustment to tax-effect the aforementioned pro forma adjustments using an estimated aggregate statutory income tax rate of the jurisdictions to which the above adjustments relate. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the Merger, are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the Merger had occurred as of January 1, 2016 or of future operating performance.