Nova Chemicals buyout good news for Teck Cominco shareholders?

I, like many other investors woke up this morning to see that Nova Chemicals was purchased or saved by a $6 per share bid. In spite of the fact they had $1.8 billion in debt and that they were running out of time to cover a 100 million dollar debt payment that was coming due in March, International Petroleum (IPIC) bought them for a 350% premium to their Friday closing price.

To those who have been a longtime shareholder of Nova Chemicals at $20, $30, or $40 dollars this may have not made their days, but when one is faced to consider the alternative, namely, bankruptcy, this was a huge win for all. The creditors dividing them up for pennies on the dollar, so when shareholders get something back other than a capital loss receipt, this a positive for the shareholders, the market, and Teck Cominco.

So why is this positive for Teck Cominco you may ask? Teck Cominco makes no chemicals, where is their connection? Teck Cominco has been tagged for its demise since the Fording deal closed last year. Base metals tanked, they overpaid for Fording, Aur Resources, a 20% stake in Fort Hills, and bought a true lemon in Novagold's Galore Creek project. Their CEO, Don Lindsay, a former investment banker took this once great balance sheet and turned it into a fine company's nightmare. Teck has 5.8 billion in debt coming due by year end, and the market has took its stock from $45 to $4 on the assumption he won't make it, and the bankruptcy court will be stuck selling it for pieces. Familiar comments I heard only weeks ago about Nova Chemicals as it broke under $3, and thus, why I feel Teck Cominco is now a screaming buy.

Teck has already sold some of its gold assets to Barrick for about 65 million, and is the process of negotiating the sale of 40% of its coal assets as well, which may raise another 4 billion (a huge writedown for Teck, but so it goes). This will leave them with only another 1.7 billion to raise. Assuming UTS is sold to Total for the $700 million bid they have made, I think Total will choose to make the same offer to Teck for the other 20% stake in Fort Hills, thus consolidating 40% of the project, and leaving Teck with only 1 billion to raise through an equity or bond issue (Teck will survive with the majority of its core assets in tow).

Thus, the industry still sees real value in this company's assets, just not at the prices Lindsay paid. When one considers the level of interest in their holdings and puts the size of their debts in perspective for a company like BHP or Mitsui, you cannot help to think that with an enterprise value of 11 billion, and depressed valued assets worth 9 billion (including cash in hand), that a bid will arrive before anyone can consider bankruptcy as an option. Moreover, if they fail in one or all of these endeavours, which I greatly doubt, the IPIC bid demonstrates a company with assets and an enormous level of debt can still draw a premium bid for those who are brave enough to buy a stock from a market that holds very real and highly valued assets. The enterprise value for Nova Chemicals was under 2 billion and the book value of their assets was only about 1 billion based on current NAV valuations, yet IPIC paid 2.3 billion (with their debt). This bid not only rewarded those late arriving shareholders, but may have saved many long term shareholders from leaving with nothing more than a larger capital loss for 2009. I am sure they prefer the former to the latter outcome option.