Nova Corp. announced yesterday it is selling its 26% interest(38.8 million shares) in Dynegy Corp. (formerly NGC Corp.) andplans to redeploy the potential $460 million in proceeds in itscommodity chemicals business. Nova CEO Jeffery Lipton said themarket is “currently assessing little or no value to ourinvestment” in the Houston-based marketing and processing company.

Nova has been “pleased with the progress” made by Dynegy,believes in Dynegy’s management strategy and expects to continue apositive working relationship with the company, said Lipton.”However, it is in the best interest of Nova shareholders toredeploy the resources.” Dynegy CEO Chuck Watson said Dynegy’sboard was alerted about the sale on Friday. He said Dynegy”understands Nova’s desire to divest” given its new corporate focusin chemicals, which followed the spin-off/merger with TransCanadain June.

Following the spin off of Nova Chemicals, now Nova Corp., Liptonindicated the company might be interested in substantially raisingits stake in Methanex Corp., the world’s largest methanol producer.Nova currently owns a 26% interest in Methanex. However, yesterdayLipton said Nova had not decided where to invest the proceeds.

The deal possibly could involve an asset swap with one of theother Dynegy owners, Chevron or British gas distributor BG plc. Thetwo other Dynegy owners had rights of first offer for the sharesbut the time limit on those rights passed without action. Chevronspokesman Mike Libby noted, however, Chevron has had an “interestfor some time in increasing our share in Dynegy and the primaryfactor has been doing so at the right price for our stockholders.”

Nova now intends to shop its shares on the market. If it findsan offer, Chevron and BG still have rights of first refusal tomatch. Currently Dynegy shares are trading at a 52-week low ofslightly less than $12/share, putting the total value of thetransaction at $460 million, which is “almost double” the value ofNova’s 1994 investment in Dynegy.

Merrill Lynch analyst Donato Eassey said Dynegy’s stock pricecould benefit from the sale if it resulted in more Dynegy sharesbeing traded in the marketplace. “If they sell it into themarketplace, I view that as a positive because one of the thingsDynegy lacks is float. There’s just not that much out there totrade. The thinner the float, the more difficult it is forinstitutions to own a stock. Only 8% of Dynegy is owned byinstitutions. Most of the gas stocks are held 30-50% byinstitutions. You need to have a market in a stock for it to tradeeffectively.

“If they want quick money, they’ll go to Chevron or BG,” saidEassey. “My personal opinion is that as you look forward and we’reheading into winter a lot of positive things could happen in thegas industry that could translate into a better stock price downthe road for this stock. But right now weather is pretty moderateand everything is in the tank. So it’s not necessarily the besttime to be out there trying to sell energy instruments.”

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