Ashland Finishes Transformation

By Eric Fox | November 30, 2011 AAA

Ashland (NYSE:ASH) has completed a transformation of the company over the last five years and has achieved its goal of becoming a specialty chemicals company that operates a set of less cyclical and more geographically diversified businesses.
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Divestitures
Ashland has changed the nature of the company's businesses over the last five years through a number of selective divestitures and acquisitions. The company's goal was to reduce its dependence on cyclical and/or low margin businesses and increase its share in the specialty chemicals area. (For related reading, see Biggest Merger and Acquisition Disasters.)

In 2005, Ashland sold a minority stake in Marathon Ashland Petroleum, a refining joint venture with Marathon Oil (NYSE:MRO), and exited the refining business. Marathon Oil would itself make a similar decision to exit the refining business and separated into two companies with Marathon Petroleum Corporation (NYSE:MPC) keeping the refining assets.

Ashland divested its Paving and Construction segment in 2008, netting $1.25 billion in proceeds for the company. In early 2011, Ashland sold its distribution business to a private equity firm for $979 million, and exited this business. The most recent divestiture was the sale of the company's polyvinyl acetate business to Celanese Corporation (NYSE:CE) in November 2011.

Acquisitions
Ashland used some of the proceeds of these sales to make acquisitions in other areas. In 2008, Ashland acquired Hercules Incorporated and added to the company's Specialty Chemicals business.

Ashland's most recent major purchase was of International Specialty Products (ISP), a privately owned company that manufactured a wide range of chemicals and other products. The newly acquired business is being integrated into Ashland's Specialty Ingredients segment.

Transformation
Ashland estimates that approximately 79% of the company's EBITDA in fiscal 2011 (ended September 30, 2011) was generated from the Specialty Chemicals area. This figure is pro forma for the recent acquisition of ISP, and is up from only 15% in 2004.

As a result, Ashland has also become more diversified geographically and now generates 47% of the company's sales outside North America, compared to only 12% in 2004.

Growth
Ashland is embarking on a three-year growth program across Ashland's four business segments - Specialty Ingredients, Water Technologies, Performance Materials and Consumer Markets.

The company expects to increase EBITDA to $1.7 billion by 2014, with margins between 17 and 18%. This goal represents compound annual growth of 14% over the three-year period. (For more on EBITDA, see EBITDA: Challenging The Calculation.)

The Bottom Line
Ashland has now achieved the company's goal of being a specialty chemical company and now must attempt the more difficult feat of meeting its three-year growth plan with the headwind of a sluggish economy.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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