Ashland Inc. (ASH) has wrapped up the sale of its Water Technologies unit to a fund managed by private investment firm Clayton, Dubilier & Rice for roughly $1.8 billion. The company landed a deal to divest the unit in Feb 2014.
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. Revenues from the division edged up 1% year over year to $441 million in third-quarter fiscal 2014 (ended Jun 30, 2014).
Ashland’s Board had been reviewing alternative opportunities for the unit since Jul 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.
The divestment allows Ashland to focus on its core specialty chemicals business and boost shareholder returns. Citigroup (C) acted as financial advisor to Ashland on the deal.
Ashland received 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. Under this repurchase program, Ashland bought back over 760,000 shares for $80 million in the third quarter.
Moreover, Ashland will initiate a $750 million accelerated stock repurchase (“ASR”) program and will also introduce another program that will allow it to buyback additional shares worth $250 millions. Both programs are expected to complete by Jun 2015.
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 offers specialty chemicals in more than 100 countries. It markets Valvoline, the world’s first lubricating oil. With the closure of the Water Technologies unit sale, the company now have three commercial units – Specialty Ingredients, Performance Materials and Valvoline.
Ashland is a Zacks Rank #2 (Buy) stock.
Other companies in the chemical space worth considering include LyondellBasell Industries NV (LYB) and Marrone Bio Innovations, Inc. (MBII) with both carrying a Zacks Rank #1 (Strong Buy).
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