Boston, MA 04/30/2014 (wallstreetpr) – Westlake Chemical Corporation (NYSE:WLK) is out to do what is common among pipeline companies today. The company announced the spinoff of its business unit that deals with the acquisition and production of ethylene. The newly created business will operate as a master limited partnership (MLP).
Westlake filed with the regulators for the initial public offering of the new company’s units. The IPO is intended to raise about $272 million. The partnership will trade on New York Stock Exchange under the ticker symbol of “WLKP.” Westlake will own majority stake in the partnership. In addition, it will buy ethylene from the company.
MLP and why they are popular
Master Limited Partnerships enjoy certain tax advantages. However, partnerships are required by law to distribute their all of their profits to unit holders on a quarterly basis. MLPs are becoming very common in the pipeline industry as big companies seek to consolidate operations to gain focus in core businesses.
Westlake Chemical Corporation (NYSE:WLK) expects the spinoff to allow it increased focus on specialized chemicals business where demand and margins are high. The company currently manufactures a range of petrochemical that include styrene, polyethylene, ethylene and propylene.
Although specialty chemicals production will gain center-stage at Westlake, it will buy ethylene from its partnership business because it is an important building in petrochemicals.
In addition to acquiring, developing and operating ethylene production facilities, Westlake Chemical Partners will also operate ethylene pipeline.
Taking advantage of the situation
The abundance of natural gas provides an opportunity for Westlake Chemical Corporation (NYSE:WLK) and its peers in the petrochemical industry to readily obtain natural gas liquids at cheap prices. Therefore, the surge in natural gas liquids supplies enables petrochemicals to enjoy higher profits margins without mentioning the steady supply and readily available natural gas liquids.
In conclusion
Although Westlake Chemical Partners has filed for IPO, the pricing of units has not been done. However, Westlake Chemical Corporation (NYSE:WLK) will purchase a majority of the units when they are offered for sale so to gains majority control in the business.
