Ashland To Divest Distribution Business

Ashland has agreed to sell its Ashland Distribution unit to private equity firm TPG Capital for $930 million. Ashland Distribution is the third-largest chemical distributor in the world, behind Germany's Brenntag and the U.S.'s Univar, according to figures from Brenntag. It is the second-largest distributor in North America, behind Univar.

Ashland Distribution generated sales of $3.4 billion in the fiscal year that ended on Sept. 30, representing 37% of Ashland's total revenues. The distribution unit's $89 million in earnings before taxes over the same period made up only about 10% of Ashland's overall earnings.

"The sale of Ashland Distribution was not about its performance," Ashland CEO James J. O'Brien told analysts in a conference call this morning. "The sale reflects Ashland's strategic direction and completes a major step in our multiyear transformation into a high-performing special chemicals company."

Ashland sold its 38% stake in Marathon Ashland Petroleum in 2005 to its partner Marathon Oil for $3.7 billion. The next year, it sold its road construction and paving unit to Ireland's Oldcastle Materials for $1.3 billion. It purchased specialty chemical maker Hercules for $3.3 billion in 2008.

The first priority for the excess cash on Ashland's balance sheet, O'Brien said, is making "bolt-on" acquisitions—for prices between $150 million and $300 million—in its functional ingredients and water technologies businesses. "We will assess all options at our disposal," he said. Moreover, O'Brien would not rule out a larger acquisition.

Dealmaking in the chemical distribution business has been brisk this year. Brenntag raised more than $900 million in an initial public offering (IPO) in March. Univar postponed an IPO in September when its owner, CVC Capital Partners, decided to sell a 42.5% interest to another private equity firm, Clayton, Dubilier & Rice. Last month, Univar announced the purchase of the distributor Basic Chemical Solutions, which had $889 million in 2009 sales.