Is Ashland Distribution Up For Sale?

Ashland Distribution divestiture talk has been heating up in recent weeks. According to a Reuters report, the company is consulting with investment bankers to sell the unit, which may fetch about $500 million.

An Ashland distribution center.

The unit has long been regarded as one that Ashland would be willing to part with. CEO Jim O’Brien has been transforming Ashland into more of a specialty chemical company. It sold off its 38% stake in Marathon Ashland Petroleum in 2005 for $3.7 billion. It divested its paving and construction unit a year later for $1.3 billion. And in 2008, it purchased Hercules for $3.3 billion.

The company isn’t cash strapped, but with the new focus, businesses like distribution and Valvoline fit more uneasily in the company’s portfolio than they used to. But Valvoline generated 60% of Ashland’s operating profits in 2009 on 20% of its sales. Those are the kinds of businesses that a company seeks to duplicate with portfolio reshuffling, not sell off to buy businesses that won’t earn as much. Distribution, meanwhile generated only 12% of the company’s profits on 37% of its sales. Ashland can probably do without a business that generates a 1.7% operating profit margin.

The rumor also makes sense because there is a lot of action now in the chemical distribution sector. Brenntag raised $900 million in a public offering in April. Univar wants to raise nearly that much with an upcoming IPO.

Ashland has been very quiet on the matter. According to Laurence Alexander, an analyst that covers Ashland for Jeffries, O’Brien told a Jeffries investor conference in New York that the unit was a non-core business.

I believe Alexander, but I really don’t know what O’Brien’s specific wording was. There was never any audio available to the public for me to confirm the statement independently.

I called Jim Vitak at Ashland PR. He offered the customary response to rumors. “We don’t comment on marketplace rumors and speculation,” he said.

Vitak then walked back the divestiture talk a bit. He wouldn’t confirm O’Brien’s statement before the conference. (That’s unusual. Normally companies fess up when the CEO says something in front of a room full of people or deny it if they didn’t say anything.)

Vitak even argued against a divestiture. “There has been talk out there for several years off and on,” he said. He added that there may have been times when the unit “needed work” but that “work has been put in”. Ashland also, according to Vitak, reached its targeted debt levels and can attain its near term profit goals without a divestiture.

One can only guess as to why the company is being so secretive. Companies do get a little mud on their faces when they can’t sell a business. Rumors of a sale might also be bad for morale at the distribution unit.

Author: Alex Tullo

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