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Nova’s star about to fade Struggling core of Alberta’s petrochemical sector accepts takeover bid by Abu Dhabi company; deal still needs approvals Gary Park For Petroleum News
Once the bedrock of Alberta’s treasured dreams of a world-scale petrochemicals industry, once forecast to see its share values top C$100, once a company that seemed to have a role in every corner of Calgary society, Nova Chemicals is now on the brink of disappearing forever, maybe into the fold of an Abu Dhabi government-owned company.
Trapped between its own cash squeeze and desperate for financing, Nova has finally given up a year-long fight to keep acquisitors at bay.
The offer on the table of US$2.33 billion — $499 million or $6 per share and the assumption of debts — comes from International Petroleum Investment Co. and hinges on ratification by the Canadian government and two-thirds of Nova shareholders.
If the deal goes through, it represent only a fraction of Nova’s estimated real worth.
Chief Executive Officer Jeff Lipton told a conference call Feb. 23 that replacing his firm’s assets would actually cost up to $11 billion, including $5 billion for the ethylene and polyethylene complex in central Alberta which has a payroll of 760.
It produces 4.8 billion pounds a year of ethylene, 2.2 billion pounds of polyethylene plastic and may add another 1 billion pounds of polyethylene.
“We looked at a wide range of things: private equity, trying to deal with our current balance sheet and moving forward with current borrowing; we looked at the probability of bond markets opening up,” he said.
Offer ‘best alternative’
At the end of the day, the IPIC offer was “clearly the best alternative.”
“We couldn’t find the wherewithal to continue the kind of growth internally that I would have liked to have seen us be able to do and to me that’s the biggest disappointment,” Lipton said.
But the clock was running down on Nova, which needed to raise $100 million by the end of February to meet its financing obligations.
Under the offer, IPIC, which has a portfolio of assets valued at $14 billion, has agreed to provide a $250 million credit backstop to give Nova sufficient liquidity going forward.
Lipton also said the deal gives Nova “both stability and long-term growth,” by preserving its independence as a chemicals and plastic company and retaining current senior management.
IPIC Managing Director Khadem Al Qubaisi said the acquisition will “provide enhanced balance sheet strength for Nova Chemicals and facilitate Nova Chemicals’ growth internationally.”
The $6 a share offer was a 348 percent premium over Nova’s closing stock price on Feb. 20.
Split from TransCanada It revives nostalgic and bitter memories for some of Nova’s emergence as a publicly traded company in 1998, after splitting from TransCanada, when its stock was worth $31.75, climbed to an all-time high in 2005 of $63.77 (well short of the $105 forecast for 2001 by TD Securities) then started its downward spiral, bottoming out at $1.38 in early February.
But the homegrown affection for Nova disappeared a decade ago when the corporate headquarters were moved to Pittsburgh — a decision that still makes little sense for a company that had its core operations in Alberta and Ontario.
Regardless of its location, Nova was criticized for its strategy. Jeffrey Zekauskas, an analyst at JP Morgan Chase, said in a report that it was unique among its petrochemical peers by not paying down debt “during the past few years of above-normal industry profitability.”
IPIC has already established a formidable base in Alberta and through an Alberta-based company. In 2007, one of its affiliates, TAQA, bought North Sea assets from Talisman Energy, swallowed Northrock Resources for C$2 billion in cash, scooped up PrimeWest Energy Trust for C$4.6 billion and paid C$540 million for the Canadian unit of Pioneer Natural Resources.
Next step government Short of an unexpected counter-offer from any other companies in the troubled petrochemical sector, or a private equity firm, attention now turns to the Canadian government, which will review the IPIC offer under its recently introduced Investment Canada Act, which requires that the transfer of Canadian assets to foreign-controlled interests must be of net benefit to Canada.
That will matter to any of the proliferating state-owned companies eying a move into Canada’s natural resource world to buy themselves some added energy security. TAQA itself has declared its goal of establishing Canadian operations worth C$20 billion over the next five years.
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