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Ashland Unloads Paving Unit

After the transaction, Ashland will deal solely in chemicals

by Alexander H. Tullo
August 22, 2006 | A version of this story appeared in Volume 84, Issue 35

In a move meant to focus its attention on its chemicals businesses, Ashland is selling its Ashland Paving & Construction (APAC) subsidiary to Oldcastle Materials, a division of Ireland's CRH and the largest asphalt producer in the U.S, for $1.3 billion.

The company plans to use proceeds from the sale to repurchase shares and to pay a special dividend to shareholders.

APAC manufactured about 32.5 million tons of construction aggregates and 31 million tons of asphalt during the fiscal year ending in June 2006. About one-third of the aggregates and two-thirds of the asphalt were used in its own road construction business.

The unit had sales over this period of $2.9 billion and about 9,700 employees. In June, Ashland said it was in negotiations with Oldcastle and was also considering spinning off the business as a separate company.

In a conference call with investors, Ashland said the business is performing well. But the business is encountering "headwinds" from inflated materials prices that will likely hurt APAC profits in the future. The company says hot-mix asphalt prices have increased 36% from July 2005 to July 2006.

However, James J. O'Brien, Ashland's chief executive officer, said the deal is really meant to sharpen the company's focus on chemicals. "The sale of APAC was not about its performance but about Ashland's strategic direction and completes a major step in our multiyear transformation into a global chemical company," he said.

After the acquisition closes, the company's divisions will be specialty resins maker Ashland Performance Materials, automotive products maker Valvoline, Ashland Water Technologies, and Ashland Distribution. Last year, the company sold its 38% stake in Marathon Ashland Petroleum and its maleic anhydride business to Marathon Oil for $3.7 billion.

Even with the cash distributions to shareholders, Ashland said that money left over from the sale of the paving business and other businesses will enable it to make more than $2 billion in purchases without increasing debt beyond two times its earnings before taxes.

Ashland officials said they are interested in acquisitions in adhesives, composites, and water treatment and would prefer larger deals to smaller ones of about $150 million to $500 million. In May, Ashland completed the $144 million purchase of Degussa's water treatment business.



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