Abu Dhabi's IPIC bids for NOVA Chemicals

Abu Dhabi’s International Petroleum Investment Company (IPIC) will acquire NOVA Chemicals (Calgary, AB) for $6/share in a deal valued at $2.3 billion, including NOVA’s debt. The parties said NOVA Chemicals’ operations are geographically complementary to IPIC’s, and NOVA, primarily based in North America, will join IPIC’s existing petrochemicals investments in Europe, the Middle East, and Asia.

In a Feb. 23 conference call with investors, Jeffrey Lipton, NOVA’s president and CEO said the company had weighed a number of options before promoting IPIC’s offer to its shareholders, including private equity, public equity, continued borrowing, and considering the probability that bond markets might open up.

“When compared to the wide range of alternatives our company has explored over the number of months,” Lipton said, “the IPIC agreement was the best alternative to NOVA Chemicals, its shareholders, bondholders, and other stakeholders.”

Responding to a question on the deal’s valuation, Lipton pointed out that while $6/share seemed low, it represented a premium of four-and-a-half times Friday’s close and three times the stock’s 30-day average. NOVA’s 52-week high-low range spans from $1.05 to $32.46/share.

“When you’re selling for $1.30 something on the NYSE [New York Stock Exchange] and somebody proposes a huge premium to that, with all those facets considered, I think the board has to deal with the time and the place,” Lipton said. “It can’t just say, ‘We thought, a while back, that we were worth something different.’ You have to deal with today, and that’s what they did, and I think came to the right decision for today.”

As part of the deal, IPIC will supply NOVA with a $250-million credit backstop facility to provide it with liquidity over the short-term. In addition, IPIC said it will allow NOVA to operate as an independent chemicals and plastics company and continue to invest in the company’s Canadian operating sites in Alberta and Ontario, as well as its research and development facilities in Calgary. Saying in a release that it “encourages significant management autonomy” in its investments, IPIC said it has no plans to change NOVA’s current operations, including executive leadership, with current president and COO, Chris Pappas, expected to still take NOVA’s reins when Lipton retires on May 1, 2009.

The deal is still subject to court, regulatory, and shareholder approval, with an information circular expected to mail to NOVA shareholders in March, and a special meeting of shareholders planned for April.

Started in 1984, IPIC is wholly owned by the Emirate of Abu Dhabi’s government with a stated mandate to invest in the hydrocarbon sector outside Abu Dhabi. IPIC has equity stakes in European firms Borealis, OMV, CEPSA, Energia De Portugal, and MAN Ferrostaal, as well as other investments in the Middle East, Japan, and Australia.

NOVA has five manufacturing sites in Canada, including three in Ontario (Corunna, Moore Township, and St. Clair River) as well as one in Alberta (Joffre). It has three production sites in the U.S. (Monaca, PA; Painesville, OH; and a tolling venture with LyondellBasell in Channelview, TX). It also has two sites in Chile (Quilicura and El Tepual). NOVA’s Canadian operations are devoted to polyolefin production, with the other global sites focused on styrenics production, including polystyrene (PS), expandable polystyrene (EPS), and styrene maleic anhydride (SAM).

In January 2008, NOVA announced plans for a series of PE plant modernization and expansion projects in the Sarnia, ON region. The projects would add a total of up to 250 million lb/yr of new PE capacity in stages over the next two years. The company’s Corunna site is located in Sarnia-Lambton’s Chemical Valley, about 180 miles southwest of Toronto, and employs 500. The site includes a refinery and is capable of producing in excess of 6.5 billion lb of basic petrochemicals and 3 billion lb of refinery and energy products annually.

Nova describes its Joffre site, north of Calgary, as the largest ethylene and PE complex in Canada, consisting of five manufacturing facilities: three for ethylene production and two for PE production, with more than 700 employees and annual production capacity of 2.2 billion lb. The Moore site, in St. Clair Township, ON, has 220 employees and rated annual PE capacity of about 830 million lb (375 kilotonnes). St. Clair River employs 190 and has the capacity to produce 395 million lb (180 kilotonnes) of PE/yr, utilizing the company’s proprietary Sclairtech catalyst technology. In 1995, the company built a pilot plant to test new PE catalysts in St. Clair.

In Pennsylvania, NOVA manufactures polystyrene (PS) and expandable polystyrene (EPS), as well as several of its Performance Products, including Dylark styrene maleic anhydride (SMA). This site, which NOVA idled on Nov. 21 of last year, also houses a Styrenics Technology Center, which was inaugurated in 1998. NOVA Chemicals purchased the operation from ARCO Chemical in 1996. The facility employs 340 and has the capacity to manufacture roughly 475 million lb 
(209 kilotonnes) of resin annually. In Painesville, OH, northeast of Cleveland, NOVA has annual capacity for 85 million lb (40 kilotonnes) of EPS and 47 employees. In South America, NOVA’s sites in Quilicura, near Santiago, and El Tepual, near Puerto Montt, Chile, are former Shell Chemicals operations, purchased by NOVA in early 2000, with 3.5 and 2.1 kilotonnes/yr capacity for EPS, respectively.

In its Jan. 29 release of fourth-quarter earnings, NOVA announced a net loss of $214 million for the final three months of 2008. The company’s styrenics joint venture with INEOS posted a $77 million loss for the quarter, with Performance Styrenics down $35 million.

PE sales volume was 747 million lb in the fourth quarter versus 864 million lb in the previous quarter. After weak sales volumes in October and November, NOVA sold 345 million lb of PE in December, the highest volume for any December and the second highest monthly sales volume on record. For the full year, adjusted EBITDA from polyethylene was $33 million, compared to $196 million in 2007.

NOVA Chemicals’ 50% share of INEOS NOVA provided an adjusted EBITDA loss of $78 million for 2008, compared to an adjusted EBITDA gain of $17 million for 2007. Nova and Ineos merged their North American styrenics operations in 2007.

The Performance Styrenics segment reported an adjusted EBITDA loss of $45 million for 2008, compared to an adjusted EBITDA loss of $5 million for 2007. NOVA generates approximately 45% of its revenue in the U.S., 35% in Canada, and the remaining 20% globally. —[email protected]