Web Date: May 31, 2011
Ashland Moves Deeper Into Specialties
Ashland has agreed to buy specialty chemicals maker International Specialty Products (ISP) for $3.2 billion in cash. The acquisition will expand Ashland's portfolio of products for the personal care and pharmaceutical markets, which the company has targeted for their high margins, high growth rates, and relative immunity to economic downturns.
Privately held ISP had $1.6 billion in sales for the 12 months ending on March 31 and earnings before interest, taxes, depreciation, and amortization (EBIDTA) of $360 million. The company is owned by the family of late Chairman Samuel J. Heyman, who died in November 2009 (C&EN, March 29, 2010, page 14). ISP has 2,700 employees and 17 manufacturing facilities around the world.
Although some observers saw ISP as a takeover target following Heyman's death, in a conference call to discuss the merger, stock analysts remarked to Ashland CEO James J. O'Brien that they were surprised by the news. Ashland expects the deal to close by the end of the third quarter.
In recent years, Ashland has undergone a strategic shift toward specialty chemicals and away from legacy businesses such as petroleum refining and chemical distribution. In 2008, Ashland bought Hercules, another specialty chemical maker, for $3.3 billion. That purchase brought with it a major water treatment business and a host of specialty additives and functional ingredients.
Ashland will place all of ISP into its Aqualon functional ingredients business. About one-third of Aqualon's customers are in the personal care, pharmaceuticals, and food and beverage markets. In addition to personal care and pharmaceutical ingredients, ISP will also contribute water soluble polymers and additives for food, energy, coatings, adhesives, and water treatment applications.
O'Brien tells C&EN that ISP fulfills his goal of getting Ashland more involved in drug and personal care ingredients. "We had small but important businesses. But with bringing ISP on top, it dramatically changes the positions we have. It is 75% more in some areas," he says. Big additions include products for hair care, skin care, and oral care.
Following the acquisition of ISP, Ashland will get 74% of its revenues from specialty chemicals, compared to 14% in 2004. Valvoline, Ashland's consumer-branded motor oil company, supplies the balance of the sales.
Laurence Alexander, chemicals analyst at Jefferies & Co., wrote in a note to investors that "this transaction should help upgrade Ashland's portfolio of specialty businesses focused on less cyclical end markets."
O'Brien says he has no plans to sell Valvoline and isn't identifying any ISP businesses that he would sell. "We are interested in the businesses' position, technology, and how our customer views us as a partner," O'Brien says. "Our integration team will bring recommendations to best optimize what we have bought."
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