645 Seventh Avenue, S.W.
Novacor Chemicals Ltd. is Canada's largest chemicals company as measured in sales. A subsidiary of NOVA Corporation, a worldwide natural gas services and petrochemicals company headquartered in Calgary, Alberta, Canada, Novacor is a major manufacturer and distributor of petrochemicals and plastics. With production facilities in Canada and the United States, Novacor produces primary and basic petrochemicals, such as ethylene, styrene, and propylene, which are used to make plastic resins and other products. The company's broad range of plastic resins, including polyethylene, polystyrene, and styrene/acrylics, go into the manufacture of rigid and flexible packaging, industrial containers, multi-purpose bags, and a wide variety of consumer and industrial goods such as food packaging, toys, and medical devices.
By the mid-1990s, Novacor was North America's second largest producer of ethylene, the third largest producer of polystyrene, and the fifth largest producer of polyethylene in North America. The company's six petrochemical facilities in Canada and two plants in the United States sold eight billion pounds of petrochemicals worth C$2.65 billion in 1994. Major markets for Novacor's products included over 21 countries in North America, the Pacific Rim, and Europe.
The history of Novacor is closely allied with that of its parent company. NOVA Corporation was originally incorporated as the Alberta Gas Trunk Line Company Ltd. (AGTL) in 1954 by Ernest Manning, the premier of the Province of Alberta. The company was formed to gather natural gas within the province and expanded its scope over the next 20 years to also include operations involved in the exploration and exportation of natural gas.
AGTL also began to invest in chemicals during the 1970s, forming several subsidiaries, including Alberta Gas Chemicals Ltd and Alberta Gas Ethylene Company Ltd. In 1975, AGTL began to explore the possibilities of producing ethylene, and entered into a joint venture with Dow Chemical Co. and Dome Petroleum Ltd. In the agreement, AGTL was to build an ethylene plant near Red Deer, Alberta. Dow would be supplied with the ethylene the plant produced, and Dome would transport the surplus chemical to eastern Canada and the United States.
Under President and CEO S. Robert Blair, AGTL continued expanding its operations, acquiring companies and expanding its pipeline network. By 1977, AGTL's net income had grown to nearly US$58 million. In 1979, AGTL acquired a major share of the stock of Husky Oil Ltd., a prominent gas and oil producer and marketer, through an aggressive and expensive takeover initiative. Also that year, the company's first ethylene plant started operations at Joffre, Alberta. In 1980, AGTL changed its name to NOVA, an Alberta Corporation, to reflect its expanded activities outside of natural gas transportation. The following year, Novacor Chemicals Ltd was incorporated to manage and operate NOVA's growing petrochemical concerns.
By 1982, economic recession, severe price restrictions, and higher taxes from Canada's national energy program put pressure on the profitability of NOVA's oil and chemical concerns. Stock prices fell from C$14.38 a share in 1981 to C$6 a share at the end of 1983. In 1984, NOVA shored up its financial situation by selling some of Husky's assets for a US$505 million profit and another subsidiary. In the same year, NOVA brought into operation a second ethylene plant and started up a polyethylene plant at the Joffre facility. By the end of 1984, things were looking up and NOVA reported a net income of C$203.4 million, five times that of the year before. In 1987, the company was renamed NOVA Corporation of Alberta.
In 1987, the polyethylene plant at Moore Township, Ontario, was added to the petrochemical holdings. The following year, Novacor made a share acquisition and gained control of Polysar Energy & Chemical Corporation of Toronto at a cost of nearly C$1.92 billion. Debt from this purchase prompted NOVA to sell four of its non-chemical subsidiaries the following year in 1989. In the same year, Novacor acquired a polypropylene facility in Marysville, Michigan, and began construction on a polystyrene plant in Alabama. In 1990, the Polysar rubber operations were sold to Bayer AG of Germany for C$1.25 billion. NOVA's net income that year was C$185 million, considerably lower than expected due to volatile prices in the plastics and petrochemicals industries and continued debt from the Polysar purchase.
The chemicals and plastics business proved cyclical and volatile, depending on demand for products, capacity utilization of production facilities, and the cost of feedstocks such as crude oil, condensates, and natural gas liquids. Novacor and all chemical manufacturers faced difficulty in the early 1990s because of rising feedstock costs, low growth in demand for chemical products due to the recession in North America, and production overcapacity of chemicals. Excess production capacity in the chemicals industry depressed selling prices for chemical products. Nevertheless, higher prices for methanol offset the higher cost of feedstocks somewhat and producers looked forward to the full implementation of the United States Clean Air Act, which was expected to increase demand for methanol.
Performance for 1991 was disappointing for Novacor and NOVA Corporation in general. In April, NOVA considered spinning off Novacor Chemicals to finance a pipeline expansion for the gas transmission division. Blair left NOVA that year and was replaced by DuPont Canada president and CEO, J.E. (Ted) Newall. Newall overhauled the balance sheet by writing down C$675 in assets. Moreover, 80 million shares were issued for C$574 million to finance the expanded distribution of natural gas outside of Alberta. Novacor's debt load and the persistence of unfavorable market conditions for petrochemicals at the end of the year scuttled the company's plan to spin off the chemicals division. NOVA reported a loss of C$937 million for 1991 and Novacor Chemicals reported a loss of C$108 million.
The depressed prices and demand for petrochemical products during 1991 and the expectation that these conditions would continue led NOVA to perform a comprehensive strategic review of its petrochemical businesses. NOVA determined that the shape and direction of the organization would have to be modified to keep pace with changing trends in the industry. NOVA reduced and decentralized senior management, sold its interest in Husky for C$325 million, and closed some petrochemical plants that it considered to be non-competitive. The company then realigned its businesses under four major divisions: Alberta Gas Transmission Division, NOVA Gas Services Ltd., Novacorp International Inc., and Novacor Chemicals Ltd. At the same time, the company created a plan for future strategic investment and expansion. NOVA's new corporate mission focused on investments compatible with the company's existing businesses and expertise, especially in areas of potential growth.
Despite continued depressed prices and industry production overcapacity, Novacor's performance improved in 1992 with year-end earnings of C$2 million. At the end of its reorganization, NOVA had cut 300 positions. Novacor was recognized for its innovative and extensive re-employment program for the 60 employees displaced by the closing of its West Haven, Connecticut, plant. Rather than receiving criticism over the closing, the company was cited for its sensitive and realistically helpful transition management techniques. Novacor announced the closing five months ahead of time and announced the re-employment program at the same time. The company provided free consulting, job retraining, and aid in finding open positions at area companies.
In 1992, Novacor fully implemented its Responsible Care environmental program at all of its Canadian facilities. Responsible Care was a comprehensive environmental, health, and safety (EHS) management and improvement program that was voluntarily adopted by members of the chemical industry in over 30 countries. Novacor put the initiative in place after five years of preparation for the program's requirements. In 1993, Novacor put identical practices in place at its United States operations. In 1992, Novacor was ranked in the second quartile among comparable companies for environmental performance. The company then set its goal at first quartile performance and took steps to reach that level of performance, including developing a cross-functional team to set standards for EHS policy and an expanded EHS audit program. Novacor and other Canadian chemicals companies also initiated the National Emissions Reduction Master Plan in 1993. The plan required participants to set baseline measures for emissions and wastes, create reduction plans, and make this information public.
1993 saw the expansion of NOVA's chemical concerns with investments in Methanex Corporation and in new technology from DuPont Canada. In July 1994, Novacor acquired DuPont Canada's polyethylene business for C$45 million plus working capital of about C$35 million. The deal included DuPont Canada's 500 million pound per year polyethylene facility at Sarnia, its proprietary SCLAIRTECH technology, and the company's worldwide SCLAIRTECH licensing business. The purchase increased Novacor's production capacity by 30 percent and moved the company into the fifth position in polyethylene production in North America. The purchase in July 1994 also brought complementary technology and product lines to Novacor. After the purchase, the majority of Novacor's ethylene production was used internally for polyethylene and styrene production or sold under long-term cost-of-service agreements that allowed price increases or reductions according to fluctuations in the cost of production and delivery plus a specified after-tax return on Novacor's investment. The DuPont acquisition, along with a $50 million investment in expanding and improving Novacor's ethylene production facilities, made the company's ethylene and polyethylene businesses leaders in cost-competitiveness in North America. In late 1994, Novacor bought a specialty high-density polyethylene business from DuPont's U.S. operations. While the purchase did not include personnel or assets, it added seven new product types to Novacor's offerings, grouped under the heading of the SCLAIRCOAT polyethylene line.
Also in December 1993, NOVA sold three methanol plants to Methanex Corp. of Vancouver, British Columbia, and invested an additional US$185 million to purchase 24 percent of the company, the largest methanol producer and marketer in the world. These plants were among the lowest cost suppliers to the northern United States and western Canada. Through Methanex, Novacor gained a global position in methanol, in keeping with its strategy of investing in expected growth areas compatible with existing businesses and expertise. The investment in Methanex allowed both businesses to realize savings from economies derived from lower logistics costs.
NOVA's profits increased dramatically in 1994, with a record net income of C$575 million. The C$400 million increase over 1993 was attributed to increased prices for petrochemicals and the sale of non-core assets. Polyethylene prices played a large role in the increase due to increased demand, as the recession eased in Novacor's major markets, and reduced supply due to competitor operating problems and lack of production capacity. The price per pound for polyethylene rose from US$0.26 in January 1994 to US$0.49 by January 1, 1995. For sales to third party markets, Novacor sold more polyethylene than all its other petrochemical products combined.
Methanol prices tripled in 1994, significantly increasing the value of NOVA's investment in Methanex. Methanex's contribution to net income for 1994 was C$134 million, or 33 percent of total net income from petrochemicals. Petrochemicals contributed over 70 percent to total net income for the corporation in 1994.
Since Novacor's products were priced in U.S. dollars, and its costs were established in Canadian dollars, the declining value of the Canadian dollar benefited NOVA's bottom line. Also in 1994, Newall moved to rename the company NOVA Corporation to reflect the increasingly global nature of the company's activities. During this time, John Feick resigned as head of Novacor and was replaced by Dan Boivin, a former DuPont executive, as president and chief operating officer.
In May 1994 Novacor Chemicals Ltd., started along a path of "Business Transformation" (BT), a framework to help companies become more efficient, effective, and competitive in every aspect of their businesses. Dan Boivin, president of Novacor Chemicals, said, "During
As a result of BT, 300 Novacor positions and 200 contract positions were eliminated across the company. NOVA designed an innovative Employee Transition and Continuity Program to be used even after BT to provide those employees leaving the company with educational and business opportunities. While Novacor spent between C$30 and C$40 million on the project, it hoped to save in excess of C$130 million annually because of the changes brought about by BT.
For the future, pressure on the Canadian dollar and the U.S. dollar, rising interest rates, the uncertain outcome of the Quebec referendum, investor disappointment with 1994 equity returns, and the approaching end of some long-term cost-of-production supply agreements presented major challenges to the company. Nevertheless, NOVA's technology acquisitions, strategic production expansions, and new management structure seemed to provide a good foundation for going forward.