Abu Dhabi’s IPIC to Buy Nova, Entering U.S., Canada

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By Jack Kaskey and Eduard Gismatullin, www.bloomberg.com, Bloomberg Press

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Feb. 24 (Bloomberg) — International Petroleum Investment Co. agreed to buy Nova Chemicals Corp., Canada’s largest chemical maker, for $499 million, gaining its first assets based outside Europe and Asia.

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IPIC, the Abu Dhabi government-owned energy company, will pay $6 a share for Nova, a 261 percent premium to the Feb. 20 closing price, and the total deal, including debt, is valued at $2.3 billion.

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The transaction follows IPIC investments valued at more than $2 billion in the past 18 months, including stakes in EDP- Energias de Portugal SA, Portugal’s biggest electricity company, and MAN AG’s Ferrostaal, a German oil-services company. Its purchase of Nova, which makes polyethylene for bags and bottles as well as plastic for car parts, adds to holdings in Austria’s OMV AV and Spain’s Compania Espanola de Petroleos SA.

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“This acquisition will provide enhanced balance sheet strength for Nova Chemicals and facilitate Nova Chemicals’ growth internationally,” Khadem Al Qubaisi, IPIC managing director, said in a statement. “We can provide stability and allow Nova Chemicals to meet its operational and financial requirements while continuing to expand and invest in its business.”

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Nova’s facilities, mostly in North America, complement IPIC’s factories in Europe, the Middle East and Asia, IPIC said. HSBC Holdings Ltd. is acting as IPIC’s financial adviser.

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Beyond the Atlantic

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The Nova purchase announced yesterday will extend IPIC’s reach beyond the Atlantic, giving it control of manufacturing plants in Ontario, Alberta, Pennsylvania, Ohio and Chile as it makes financing available to the Calgary-based company.

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IPIC will provide a $250 million credit backstop facility and allow Nova to operate as an independent company. Nova Chief Executive Officer Jeffrey Lipton was seeking to raise financing amid concern falling chemical demand and deteriorating credit markets would prevent the company from meeting lending requirements.

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Nova “got a reasonable price,” said Hassan Ahmed, a New York-based analyst at HSBC’s securities unit in the U.S. “It’s a bit on the lower side, but keeping in mind the current economic environment and their debt situation, I think this was the right thing to do.” Ahmed rates the stock “neutral.”

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Nova soared $4.83, more than tripling to $6.49 yesterday in New York Stock Exchange composite trading. The shares had dropped 96 percent in the year up to yesterday.

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4.7 Times Earnings

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Nova, which is incorporated in Calgary and run from Pittsburgh, said its board approved the transaction. Investors will meet in April, when the deal will need the approval of at least two-thirds of voting shareholders.

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The sale price is 4.7 times last year’s earnings before interest, taxes, depreciation and amortization, and it’s 5.4 times Nova’s normal ebitda, Ahmed said. The average selling price of 150 recent commodity chemical deals is 6.6 times ebitda, he said.

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IPIC is also looking to buy stakes in oil refining and marketing companies, boosting its holdings to as much as $20 billion in the next five years as falling prices put pressure on owners to sell, al-Qubaisi told Bloomberg News in an interview in Abu Dhabi on Jan. 20. Its holdings are now valued at $12 billion to $15 billion, he said.

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Talks with Cepsa

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IPIC may raise its 9.5 percent stake in Cepsa, Spain’s second-biggest oil company, al-Qubaisi said last month. IPIC has started talks to buy the 31.6 percent owned by Spain’s Banco Santanter SA and the 5 percent owned by Union Fenosa SA, Expansion reported earlier today.

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The Abu Dhabi company has offered as much as 40 euros a share for the stakes, the newspaper said, citing unidentified people in the energy industry. Cepsa fell 0.15 percent to 66.65 euros at 10:50 a.m. in Madrid, valuing the company at 17.8 billion euros ($22.8 billion).

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Officials at IPIC and Santander declined to comment. A spokesman for Union Fenosa couldn’t immediately be reached.

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IPIC increased its stake in Vienna-based OMV by 1.6 percentage points to 19.2 percent in October, boosting its combined holding with the Austrian state to more than 50 percent.

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The Abu Dhabi company has had a stake in OMV since 1994. Together they control plastics maker Borealis A/S, which owns an Abu Dhabi petrochemical plant, the biggest in the United Arab Emirates. In 2007 they agreed to jointly explore for oil and gas in the Middle East, the Caspian region and Northern Africa.

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Korea, Japan, Pakistan

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IPIC also owns stakes of 70 percent in Hyundai Oilbank Co., a Korean oil refining and marketing company, 30 percent each in Gulf Energy Maritime PJSC, based in the United Arab Emirates, and Pak Arab Refinery Ltd. of Pakistan, and 20 percent in both Japanese refiner Cosmo Oil Co. Ltd. and Oman Polypropylene LLC.

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IPIC will also target non-energy assets through its new unit Aabar Investments PJSC, al-Qubaisi said last month, adding renewable energy will represent up to 10 percent of IPC’s portfolio.

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Nova lost $214 million in the fourth quarter as sales tumbled 36 percent, the biggest decline in eight years, because of weak demand and plunging prices for plastic resins such as polyethylene, used in bags, bottles and packaging.

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Nova’s credit rating was reduced this month by Moody’s Investors Service and Standard & Poor’s amid concern the company wouldn’t be able to obtain the financing required by lenders. S&P rates Nova corporate debt CCC+, seven levels below investment grade, and Moody’s rates the company B2, five levels below investment grade.

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Chief Operating Officer Chris Pappas will remain with Nova and become chief executive officer as planned with the May 1 retirement of Lipton, Nova said.

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Torys LLP and Clifford Chance are acting as legal advisers to IPIC. UBS Investment Bank and RBC Capital Markets are acting as financial advisers to Nova, and legal advisers are Osler, Hoskin & Harcourt LLP and Wachtell Lipton, Rosen & Katz.

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Last Updated: February 24, 2009 05:24 EST (Update 2)
Source – www.bloomberg.com, Bloomberg Press

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