NOVA CHEMICAL CORPORATION: CASE ANALYSIS
This research covers a case financial analysis of the Nova Chemical Corporation. The company is an important participant in the diversified segment of the chemical industry.
The time period of this case is the late-1980s. At that time, Nova was a somewhat distant fourth within the context of market share among diversified chemical companies, with sales levels in 1989 of less than one-tenth of those of the segment leader, Minnesota Mining & Manufacturing Company, and with annual sales less than one-half of those of the third place participant in the segment, Ethyl Corporation. This segment position placed pressures on Nova to continually strive to improve operating efficiency and provide expansion of production capacities to be in a position to exploit opportunities developing in the market.
At the time of this case (late-1989), Nova management was confronting two major issues involving finance. The first issue was the selection of a financial strategy to provide the funding for a major expansion of production facilities for the company's Environmental Products Division. This expansion was expected to require the expenditure of US$250 million over a two-year period (1990-1991). Nova's decision choice with respect to funding the expansion would be made from among three external financing alternatives and a fourth alternative that would rely partly on internal financing coupled with one of the three external financing alternatives. The internal financing alternative was predicated on the divestment of the company's Industrial Products Division. The possibility of such a divestment was the second of the two financially-related issues confronting Nova management in late-1989.
Both sales and profit growth of the Industrial Products Division in recent years had lagged the performance in these areas of the company's other operating divisions. Nova management had recently received ...