Nova Case

 Nova Case Essay

Nova Chemical

Guide:

Nova Chemicals operates in both the basic and specialty chemicals segments. The IPD division that produced basic chemical substances is below review on the market to United Chemicals due to the apparent poor performance. Upon further assessment it appears that the offer of $160 , 000, 000 is much lower than the actual value once the R& D charge is reallocated. At the same time because the IPD section does not reveal synergies with all the other partitions it is recommended to either spin off the division or start a tracking stock for making its actual worth transparent towards the market and thereby get it ready for a foreseeable future sale. To be able to raise the capital for a capability expansion for the high growth Environmental Products department we suggest a mix of debts and equity since a pure debts financing will certainly violate the interest coverage percentage covenant. Volkswagen is not really managing IPD efficiently, although United's present is insufficient. Due to the low growth in the basic chemical compounds segment in accordance with specialty chemical compounds, internal opportunities prior to 1988 were not used to upgrade IPD facilities. IPD therefore had a cost disadvantage over it is competitors because of inflexible plants. As a diversified chemicals business, Nova was underperforming. In comparison with the additional diversified chemical compounds companies, Volkswagen had the minimum P/E rate (10. 3) and the least expensive Value/Sales percentage (0. 76). Since IPD is not really integrated while using rest of business, it is relatively easy to conduct a valuation of IPD. Considering the fact that IPD will not receive any kind of benefit from Nova's R& G efforts an even more representative value for IPD can be obtained by simply adjusting the EBIT up in our measurements to compensate intended for the over-allocated R& M. Here are some valuation figures for IPD to compare against United Chemical substances offer of $160 , 000, 000 which after considering the tax benefits may be worth $236 mil (160 + 0. 4*190) to Nova Chemicals: •Based on DCF without R& D expense adjustment - $193. 21 million •Based on DCF with R& D expenditure...

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