Web Date: February 24, 2009
Emirate Government Agrees To Buy Nova
The financial crisis has forced Nova Chemicals to sell out on the cheap. International Petroleum Investment Co. (IPIC), an arm of the United Arab Emirates government that also controls the Austrian polyolefins firm Borealis, has agreed to pay $2.3 billion for the Calgary-based maker of polyethylene and styrenic resins.
The purchase price is $6 per share, representing a nearly 350% premium over Nova's closing price of $1.34 on Friday, Feb. 20, and a 200% premium over the 30-day average price of its stock.
Nevertheless, the purchase is more of a bailout than a sweetheart deal. Nova's shares traded at more than $32 a year ago. Between the economic downturn and the credit crunch, the company has been scrounging for cash to meet its debt load.
In a conference call following the deal's announcement, Nova CEO Jeffrey M. Lipton told analysts that the company had been considering a number of options, including a private equity deal, borrowing more money, or issuing more bonds. "Compared with a number of options our company has explored over a number of months of doing this work, the IPIC agreement was assessed to be clearly the best alternative for Nova Chemicals."
Nova will retain its name. Christopher Pappas, Nova's chief operating offer, will take the reins from Lipton, as planned, in May.
With sales last year of $7.4 billion, Nova is North America's fifth largest producer of ethylene and polyethylene. According to Mark Eramo, a consultant with Chemical Marketing Associates, its greatest strengths are its assets in Joffre, Alberta. There the company has ethylene capacity of 3.4 billion lbs per year and a 50% interest in a 2.8 billion-lb ethylene joint venture with Dow Chemical, both based on low-cost natural gas in the region. "From a North American perspective, Nova is sitting on a very competitive site in Joffre," Eramo says.
The company also operates a 1.9 billion-lb ethylene cracker in Corunna, Ontario; a polystyrene joint venture with Ineos; and a specialty styrenics unit. The two styrenic businesses have struggled in recent years, prompting Nova to restructure the specialty styrenics unit and explore "strategic alternatives" for the joint venture stake.
Lipton expects no regulatory hurdles for the deal because there is no overlap with IPIC's other big petrochemical business, Borealis, which primarily operates in Europe and through the Borouge polyethylene joint venture in the United Arab Emirates between Borealis and Abu Dhabi National Oil Company.
IPIC is getting a bargain, Lipton contends. He says the replacement value for Nova's plants is more than $10 billion; the Joffre operations alone account for $5 billion. According to Lipton, the financial crisis is creating similar phenomena throughout the economy. "There are a number of companies with first-class assets and first-class businesses where long-term value is being impacted by concerns about today's financial world," he said.
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