Why Westlake Chemical Corporation's Shares Popped Today

Is Westlake Chemical's price movement meaningful?

Travis Hoium
Travis Hoium
Apr 29, 2014 at 12:00AM
Energy, Materials, and Utilities

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of chemicals maker Westlake Chemical Corporation (NYSE:WLK) jumped as much as 14% after announcing the sale of its ethylene unit.

So what: Westlake is creating an MLP to hold its ethylene assets, which will then be sold to the public. Analysts at Alembic Global Advisors estimated that the MLP could be worth $85 per share, which is more than Westlake is worth on the open markets, so this could be a big boost for shares long-term.  

Now what: MLPs have become a very popular tool for companies looking to squeeze as much value from energy and chemical related products as possible. It'll take some time to see what value the public market puts on the MLP, so the exuberance may not last. Until the IPO happens, this is an incremental positive -- but it's unknown what the final value add will be for shareholders.