NOVA/TransCanada deal to create energy giant

The pending merger of Canadian pipeline giants TransCanada PipeLines Ltd. and NOVA Corp., disclosed last week, will create the fourth largest energy services company in North America.

The combined companies will have $16 billion (Canadian) in revenues, and $21 billion in assets. Market value of the two Calgary companies is estimated at more than $14 billion.

NOVA Chemicals, with $3.4 billion in revenues and $3.9 billion in assets, will be set up as an independent chemical company as soon as possible. NOVA's chemicals division also owns 26% of methanol producer Methanex Corp., of Vancouver, B.C., and 26% of NGC Corp.

Competition benefits

Ted Newell, CEO of NOVA, said the merged company will be better able to compete on a global basis.

He said the companies will grow faster as a merged operation, they will save an estimated $150 million/year in costs, and they project the deal will produce $100 million in additional pretax earnings within 3 years.

Newell said there may be some layoffs at the higher levels of the companies, but no major staff layoffs are expected.

TransCanada Pres. and CEO George Watson said the merger will position the new company to compete effectively and accelerate international and midstream business growth.

Deal's structure

The merged company will continue to be headquartered in Calgary and has a market capitalization of more than $11 billion.

The merger transaction will be accounted for on a pooling of interests basis. Under the agreement, each outstanding NOVA preferred share would be exchanged for a preferred share in the merged company.

NOVA shareholders will exchange each NOVA common share for 0.52 TransCanada shares. The operation will be split into separate energy and chemicals businesses as soon as the share exchange is completed.

The companies said they expect to complete the merger transaction, by a court-approved plan of arrangement, in second quarter 1998. It will take effect following shareholder approvals of both companies and receipt of necessary tax, regulatory, and court approvals.

Personnel changes

Gerald Maier, current chairman of TransCanada, will be chairman emeritus and a director of the merged energy services company. Maier played a key role in the merger talks.

Richard Haskayne, current chairman of NOVA, will be chairman of the board. Harry Schaefer, a TransCanada director, will be vice-chairman. George Watson will be president and CEO of the merged operation. Ted Newell will be chairman of a separate NOVA Chemicals, and Maier will be vice-chairman. Jeffrey Lipton, president of NOVA, will be president and CEO of NOVA Chemicals.

The deal is subject to approval by Canada's federal Competition Bureau.

The Alliance Pipeline, a rival project to NOVA/TransCanada's efforts to move gas from western Canada to Chicago, is likely to look favorably on the merger deal because it would increase pipeline competition. Canada's National Energy Board is currently hearing an application by Alliance, and it is widely expected to be approved.