11 May 2007 20:31 [Source: ICIS news]
By Stefan Baumgarten
TORONTO (ICIS news)--The current wave of takeovers and buyouts in Canada, along with plant closures, is set to continue as the government is unlikely to intervene, a top Canadian petrochemicals analyst said on Friday.
The takeovers reflected a broad, worldwide trend that was affecting chemicals, along with many other sectors, said independent Toronto-based petrochemicals analyst John Cummings.
In the case of resource-rich ?xml:namespace>
At the same time, its anti-monopoly regulations were weak, and the ruling Conservative government has shown no sign of intervening, Cummings said.
The country never had a consistent policy with regard to takeovers, and this was not likely to change, he added.
“The trend will continue … it is probably too late now for
Cummings pointed to the big roles in Canada of ExxonMobil, which controls Imperial Oil, a major Canadian energy and petrochemicals firm; Lanxess, the country’s only rubber maker; Basell, the former BASF/Shell joint venture, which is Canada’s only polypropylene (PP) producer; and, last but not least, Dow Chemical, which became itself the target of takeover speculation in past weeks.
Recent takeovers in
Private equity firm Littlejohn said earlier this month it planned to take over Intertape, a Montreal-based maker of polyolefins products.
Earlier, Acetex, a vinyl acetate monomer (VAM) firm, had purchased AT Plastics. Acetex was then bought by Celanese, which itself had been acquired by private equity firm Blackstone, Cummings said.
Much of DuPont
There were, however, also two deals that led to Canadian chemicals assets being repatriated, rather than sold to foreigners, Cummings said.
Along with takeovers, the multinationals have been closing many smaller, noncompetitive chemical plants in
Recent examples include plans by Solutia and Huntsman to shut production facilities in
But perhaps the biggest blow to Canada’s chemicals industry came in August when Dow said it would close all its manufacturing plants at Sarnia, Ontario, by 2008 because of lack of feedstock there after ethylene shipments from Alberta on the Cochin pipeline were stopped.
The cluster of petrochemicals firms at
However, NOVA was an obvious takeover target, especially after the hive-off of its North American STYRENIX business into a joint venture with INEOS, he said.
NOVA’s low-cost production assets in
And while based in
Methanex, based in
Recent tax changes may have made Canadian firms even more attractive to foreigners, especially to cash-rich private equity funds.
A government tax plan, announced last November, to start taxing distributions by income trusts to investors effective 2011, would put an end to that form of business organisation in
The trust sector has seen a number of buyouts since the tax announcement, which created uncertainty and may have made it hard for trusts to raise funds to grow their businesses.
The trust concept is particularly widespread in
Another recent government tax plan would bar companies from deducting interest expenses incurred on their foreign investments and expansions, putting Canadian firms at a disadvantage to foreign competitors.
That plan was “clearly a mistake” and the government would likely backtrack, Cummings said.
That deal would, if realised, have direct impacts on the chemicals industry as Alcan is a large buyer of caustic soda and a processor of chemicals and plastics in its packaging division.
It remains unclear if Alcoa’s can persuade shareholders and regulators.
One factor helping Alcan would be the big role of plastics in packaging, at the expense of aluminium. This could make a joint Alcoa-Alcan entity much less of a competitive threat in the eyes of anti-trust authorities.
Large recent takeovers of Canadian firms that succeeded include deals for mining and metals icons Falconbridge, Noranda and Inco. All ended up in foreign hands.
Likewise, foreign investors snapped up steel makers Dofasco and Algoma, hotel chains
Canadian landmarks Tim Hortons, a coffee shop chain, and Shoppers, the country’s largest drug retailer, are also under foreign control.
Up untill now,
Prime Minister Stephen Harper, a trained economist who took over in early 2006, is averse to interventionist, protectionist measures. He has repeatedly criticised what he what he terms corporate welfare; that is, corporate subsidies and tax breaks.
It remains to be seen how long his government, which has only a minority in Parliament and faces three opposition parties, can afford to stand by as large parts of the country’s resources and corporations end up in foreign ownership.
Previous Liberal governments were less willing to accept foreign takeovers, and the
Earlier Liberal governments openly protected
Although the government sold off Toronto-listed Petro-Canada in several phases in past years, ownership remains restricted under the Petro-Canada Public Participation Act. The law bars any single investor from controlling more than 20% of the company's voting shares.
The only sectors that have been spared from takeovers are
Industry group Canadian Chemical Producers Association said it had, at this time, no position on the flurry of takeover activity in
($1.00 = €0.74)
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