NOVA buyout best option; CF Industries could sweeten Terra bid; indexes fall to 1997 closing levels

By Cristal Cody

Tupelo, Miss., Feb. 23 - Market observers agreed with NOVA Chemicals Corp. that the company's $6.00-a-share buyout by International Petroleum Investment Co. of Abu Dhabi is the best option.

In other action, CF Industries Holdings, Inc. may be low-balling its synergy estimates and leaving room for an increased bid for Terra Industries Inc., according to a market analyst.

Meanwhile, it was a catch-your-breath day on Wall Street as investors pushed stocks down Monday to sink some of the major indexes to 1997 levels.

The Dow Jones Industrial Average lost 250.89 points, or 3.41%, to close at 7,114.78, its lowest end since Oct. 28, 1997.

The broader indexes also lost favor.

The Standard & Poor's 500 index shed 26.72 points, or 3.47%, to finish at 743.33 - the index's lowest close since April 11, 1997.

The Nasdaq Composite index dropped 53.51 points, or 3.71%, to close at 1,387.72.

A trader told Prospect News that the market has become ultra sensitive to policy issues, and worries hammered financial stocks on fears the government will nationalize troubled banks including Citigroup Inc.

NOVA takes cash and runs

NOVA Chemicals' shares gained $3.87, or 288.81%, to close at $5.21 on Monday.

The offer for the Calgary, Alta.-based plastics and chemical products maker represents a premium of 348% over Friday's closing stock price.

Frank Mitsch, an analyst with BB&T Capital Markets, said Monday the deal is the best option for the company "although some may view the $6 share takeout price as disappointing."

"We've long discussed the potential of NCX to be taken out," he said in an investors note.

Still, one analyst said he thought the buyout price would have been about $40.00 a share not so long ago.

Jeff Lipton, chief executive officer of NOVA Chemicals, said the offer was the best option out of the alternatives the company had considered to stay afloat over the past few months.

"When you're selling for a $1.30-something on the New York Stock Exchange, and somebody proposes a huge premium relative to that, I think the board has to deal with the time and place," Lipton said during an investors conference call on Monday.

"You can't just say we thought a while back under different conditions, we're worth something different," he said. "You have to deal with today and that's what they did and I think they came to the right decision for today."

The total value of the deal is $2.3 billion with the assumption of NOVA Chemicals' debt.

"This deal is intended to enable us to meet all of our obligations and will strengthen our balance sheet," Lipton said. "It takes a great deal of uncertainty out of the future for everyone associated with our company."

NOVA Chemicals said the buyout will allow it to meet all of its obligations and strengthen the company's balance sheet. International Petroleum Investment, an investment firm owned by the Government of the Emirate of Abu Dhabi, will provide a $250 million credit backstop facility to strengthen NOVA.

"We can provide stability and allow NOVA Chemicals to meet its operational and financial requirements while continuing to expand and invest in its business," H.E. Khadem Al Qubaisi, managing director of International Petroleum Investment, said in a statement.

Lipton said the deal's target closing date is 60 to 75 days.

The deal is subject to court and regulatory clearances and shareholder approval.

NOVA Chemicals' shareholders are expected to meet in April.

"We have very little market overlap with IPIC's current activities," Lipton said. "I don't think there will be much in terms of competitive aspects. Given the fact that Abu Dhabi acquired and operates a number of assets in Canada, I think they will get the full support of the government."

CF Industries low-balls Terra

CF Industries launched its hostile tender offer on Monday to acquire Terra for 0.4235 of a share of CF Industries for each Terra share. The offer is valued at $2.1 billion and expires May 15.

"We estimate that Terra could be worth $27.20 per share as a takeover target for an industrial buyer," Krisztian Szentessy, an analyst with Pali Capital Inc., said in a research note.

"Our ... analysis suggests that CF could increase its offer even if we assume its low balled $100 million synergy estimate," Szentessy said. "Assuming annual synergies of $187 million, we estimate that CF Industries could achieve a 13% EPS accretion by 2010. On this basis, we believe that there is room for CF industries to sweeten its offer for Terra."

Szentessy said the deal is "unlikely to be blocked on competition grounds."

CF Industries is a Deerfield, Ill.-based producer and distributor of nitrogen and phosphate fertilizer products.

Sioux City, Iowa-based Terra, a producer of nitrogen products, urged shareholders to take no action Monday in response to the tender offer while the board reviews the bid. The company said it will make a formal recommendation within 10 business days.

Terra's board rejected the offer in January.

CF Industries also has a proxy contest underway to replace three of Terra's board directors.

Stephen Wilson, CEO of CF Industries, said in a letter sent Monday to Terra's board that the offer has been well-received by investors.

"Terra's shares are up over 50% since the offer, which is over three times the percentage increase of the peer group," he said. "Given the significant premium we have offered, and the very positive market reaction, we have not seen any reason to consider changing the terms of our proposal."

Terra shares lost $1.81, or 7.33%, to close Monday at $22.87.

CF Industries' stock dropped $5.72, or 10.27%, to $50.00 in trading.

Mentioned in this article:

CF Industries Holdings, Inc. NYSE: CF

International Petroleum Investment Co.

NOVA Chemicals Corp. NYSE: NCX

Terra Industries Inc. NYSE: TRA

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