22 November 2004 00:01 [Source: ICB Americas]
Nova Chemicals Corp. and BP plan to merge their European styrenic polymers businesses into a 50-50 joint venture that will have annual revenues of around $1 billion. The companies expect to reach final agreements for the joint venture early in 2005 and to launch it in the first half of the year.
The joint venture will be headquartered in Fribourg, Switzerland, and manufacture polystyrene at seven plants throughout Europe: Nova’s sites in Carrington, UK; Breda, the Netherlands; Ribecourt, France; and Berre, France, as well as BP’s facilities in Marl, Germany; Wingles, France; and Trelleborg, Sweden.
“The joint venture will leverage the existing assets and capabilities of both partners and has the potential to deliver meaningful cost reductions as well as a stronger, broader product line to our customers,” notes Jeffrey Lipton, president and CEO of Nova Chemicals. “We believe this is the best way for us to effectively address an underperforming segment of our business. The transaction will be cashless and is consistent with our corporate strategy.”
“Our combined customer base will see better product and geographic coverage, and greater scale leading to improved service,” says Ralph Alexander, CEO of BP’s olefins and derivatives (O&D) business. “The key benefits of the proposed deal are product and technology leverage, rationalization of commercial operations and production optimization across the asset base.”
The O&D division will hold BP’s 50 percent interest in the proposed joint venture. The division is being formed from around $13 billion of operating capital employed in olefin products (ethylene and propylene) and their derivatives. BP expects an IPO (initial public offering) for the division around the end of 2005.
Nova will retain its styrenics business in the Americas, and BP’s O&D business will retain its styrene monomer facilities, as well as its interest in the polystyrene production facilities in the SECCO joint venture in China. BP will also continue to offer licensing packages to other parties.
Kevin McCarthy, an analyst with Banc of America Securities, is endorsing the European styrenics joint venture. In reviewing its impact on Nova, Mr. McCarthy estimates that the joint venture should generate at least $40 million in synergies and help both companies reduce costs in a market that is traditionally hampered by unattractive margins.
“We anticipate opportunities for fixed asset rationalization as well,” Mr. McCarthy says. “The joint venture would become number one in Europe in styrenics. It will control seven facilities that generate annual revenue near $1 billion, commanding the number one position in solid polystyrene (SPS) and expandable polystyrene (EPS). Aggregate European market share of 26 percent would exceed BASF’s 20 percent share and Dow Chemical’s share of 14 percent.”
BP and Nova are currently the third equal largest polystyrene producers in Europe, after Dow and BASF. Nova has European capacities of 265,000 metric tons of polystyrene and 245,000 metric tons of EPS. BP has 454,000 metric tons of polystyrene and 170,000 metric tons of EPS. All of BP’s equity interests in those products are in Europe.
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