Georgia Gulf (GGC)

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Georgia Gulf Corporation is a leading North American manufacturer and international marketer of two integrated chemical product lines, chlorovinyls and aromatics. Key products are chlorine, caustic soda, VCM, PVC, cumene, phenol and acetone. In October 2006, the company completed the acquisition of Royal Group, a leading supplier of vinyl-based building and home improvement products. Under the Royal Group brand, Georgia Gulf manufactures a complete line of custom and other vinyl-based building and home improvement products. The company's sales are entirely in the US and Canada.

The company is suffering from potentially overpaying for Royal Plastics, a company that makes vinyl-based housing products. The poor housing market has hurt the company. Housing starts are expected to drop by 15-20% in 2007. The $1.5 billion acquisition resulted in a $1.5 billion increase in debt. The company recently renegotiated its debt compliance (leverage and interest coverage) ratios, as the company is in danger of non-compliance.

The start-up of new PVC capacity by Shintech is likely to worsen conditions in an oversupplied market. Shintech intends to add 1.3 billion pounds of PVC capacity in 2007, an increase of more than 7.5%. This will drop industry operating rates from 89% to 84%. The phenol business has been under pressure in recent years due to Asian increases in capacity that has reduced export volumes. Operating rates remain rather low in this business, at 83%. Operating rates are low in the caustic/chlorine business, at 85%.

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