Specialty chemicals maker Ashland Inc. (ASH) has struck a deal to divest its Water Technologies unit to a fund managed by private investment firm Clayton, Dubilier & Rice for roughly $1.8 billion.
The Water Technologies unit, which has annual sales of $1.7 billion, offers specialty chemicals and services to the pulp and paper and industrial water markets. Ashland’s Board had been reviewing alternative opportunities for the unit since Jul 2013.
Ashland was reportedly in talks with potential suitors for the Water Technologies unit in Nov 2013. The company was pressed by hedge-fund firm Jana Partners (a major shareholder) last year for a corporate restructuring, including potential sale of its non-core operations.
Revenues from the Water Technologies division rose 4% year over year to $436 million in first-quarter fiscal 2014 (ended Dec 31, 2013) aided by gains across pulp and paper and the industrial water businesses.
The divestment will allow Ashland to focus on its core specialty chemicals business and boost shareholder returns. The transaction, which is subject to regulatory clearances and other closing conditions, is expected to complete by the end of Ashland's fiscal year (ending Sep 30, 2014). Citigroup (C) is acting as financial advisor to Ashland on the deal.
Ashland anticipates roughly $1.4 billion in net proceeds from the sale, which it will mainly use to return capital to shareholders through share repurchases. In sync with this goal, the company’s Board has approved a $1.35 billion share buyback program, effective immediately. This new repurchase program, which will expire on Dec 30, 2015, replaces Ashland’s earlier $600 million buyback program, which had around $450 million remaining.
The sale of the Water Technologies unit coupled with Ashland’s other ongoing restructuring initiatives will help the company to achieve EBITDA margins that rank among the top 25% of its specialty chemicals peer group.
Ashland, which currently operates through four segments, offers specialty chemicals in more than 100 countries. Its Consumer Markets segment markets Valvoline, the world’s first lubricating oil. Following the sale of the Water Technologies unit, the company will have three commercial units – Specialty Ingredients, Performance Materials and Valvoline.
Ashland is a Zacks Rank #3 (Hold) stock.
Other companies in the chemical space worth considering include Methanex Corp. (MEOH) and Northern Technologies International Corp. (NTIC) with both carrying a Zacks Rank #1 (Strong Buy).