NOVA made good choice in accepting IPIC offer – analyst

23 February 2009 20:33  [Source: ICIS news]

(adds Citigroup comments, paragraphs 10-11)

NEW YORK (ICIS news)--NOVA Chemicals made the right decision in deciding to sell the company to Abu Dhabi-based International Petroleum Investment Co (IPIC), BB&T Capital Markets analyst Frank Mitsch said on Monday.

“We’ve long discussed the potential of NOVA to be taken out, and although some may view the $6/share takeout price as disappointing, as CEO Jeff Lipton put it, the IPIC deal was ‘clearly the best alternative’, and given the current ‘time and place… [is the] right decision for today’,” Mitsch said in a research note.

IPIC has agreed to buy NOVA for $2.3bn (€1.8bn), including the assumption of debt. The $6/share price represents a premium of 348% over NOVA’s prior stock price of $1.34.

NOVA had been facing a $250m debt maturity on 15 April, and its stock price had been battered by fears of a default on that debt. A year ago, the company’s stock traded at over $32.

The acquisition is not subject to any financing condition, and completion is expected shortly after the special shareholders meeting in April and upon receipt of all regulatory approvals, Mitsch said.

The deal has the unanimous support of NOVA’s board and carries a $15m termination fee.

The fundamentals for ethylene and polyethylene (PE) have improved so far in the first quarter with a 7 cent/lb ($154/tonne) price increase for PE implemented in January, the analyst said.

“We expect that the $0.05/lb increase nominated for February could go through, and producers have nominated another $0.06/lb for March. Furthermore, inventory throughout the chain remains extremely low, and NOVA is seeing PE consumption tracking ahead of last year’s pace,” Mitch said.

The analyst expects NOVA to earn $0.70/share in the first quarter versus consensus estimates of a loss of $0.24.

In other news, Citigroup raised its target price for NOVA to $6/share, analyst PJ Juvekar wrote in a research note. Citigroup also raised its view on NOVA to hold from sell.

Nonetheless Citigroup still maintained his pessimistic view on commodity chemicals, since demand remains weak and supply could increase in the Middle East.

($1 = €0.78)

For more on ethylene or polyethylene visit ICIS chemical intelligence
For more on NOVA Chemicals visit ICIS company intelligence
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By: Joseph Chang
+1 713 525 2653

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