Jim Letourneau's Blog

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Nova Chemicals from Alberta to Pittsburgh to Abu Dhabi

Nova Chemicals Corp. (TSX:NCX, NYSE:NCX), was recently flirting with bankruptcy. With share price highs of C$41.79 in 2007 and  US$32.46 in 2008, the recent February 2009 low of US$1.05 was a blunt report card on management's effectiveness.

According to the corporate website... NOVA Chemicals' executive team knows how to win. We understand that shareholder value creation defines success and everything else must be a means to that end.

Fortunately for Nova, Middle Eastern countries have a fierce love of Dustin Hoffman. Ishtar may not have been a critical success in America but it rocked the Casbah.  It did great things for Hoffman's career overseas. Bootleg copies of "The Graduate" can be found in dusty bazaars from Abu Dhabi to Dubai.

Mr. McGuire: I want to say one word to you. Just one word.
Benjamin: Yes, sir.
Mr. McGuire: Are you listening?
Benjamin: Yes, I am.
Mr. McGuire: Plastics.

Nova share prices surged on Monday after the International Petroleum Investment Co. (IPIC) offered US$6 a share for the Calgary-based company. While this offer may be a gift to long suffering shareholders, it will be reviewed by the Canadian government to determine if there are "net benefits" to Canadians.

Nova's corporate history goes back to 1954 when the The Alberta Gas Trunk Line Company Ltd. was incorporated by an act of the Alberta Legislature. Originally, the company provided the badly needed infrastructure required for Alberta to export natural gas but the company grew to include significant production and refining assets as well. Nova's Alberta socialist roots are now a distant memory. Its management team moved the executive head office to Pittsburgh in 1999, in order to allow one-hour access to 95 percent of the company’s current and future investors.

While globalization and free market forces might dictate that this transaction should proceed, Canadians need to remember that there is a severe lack of of global reciprocity when it comes to strategic assets. IPIC is wholly owned by the government of the Emirate of Abu Dhabi.

How long does it take to fly to from Pittsburgh to Abu Dhabi?

Will Canada continue to play by free-market rules when strategic assets are valued at fire sale prices? Nova's Joffre, Alberta assets alone would cost north of US$5-billion to replace, CEO Jeff Lipton said in a conference call on Jan. 29.

Does selling them to IPIC for US$499 million make sense?

Nova's management fumbled the ball on the 1 yard line and it looks like a sovereign wealth fund flush with cash is going to pick up the ball and walk into the end zone.