Ashland’s Strategy Is Likely Target Of Aggressive Investor

Specialty chemical maker Ashland will likely face pressure to speed up divestment of several of its businesses as a result of a new 7.4% ownership stake in the firm acquired by Jana Partners. Jana is known for seeking big changes at the companies in which it invests, analysts say.

The April 11 news sent Ashland’s stock price up more than 12% by the time the market closed the next day. Jana will likely pressure Ashland executives to sell businesses in water treatment, performance materials, and Valvoline-brand motor oil, analysts say. Ashland is one of several chemical firms being targeted by investors who wish to have a strong hand in corporate strategy.

With its acquisitions of Hercules in 2008 and International Specialty Products in 2011, Ashland has been moving into specialty chemicals and away from legacy businesses in distribution and petroleum refining. In particular, the ISP purchase brought with it a portfolio of specialized ingredients for pharmaceuticals and personal care products. Specialty ingredients is now Ashland’s largest segment, accounting for about 35% of its $8.2 billion in 2012 sales.

The specialty ingredients business has profit margins of about 24%, stock analysts point out, compared with roughly 10% for the water and performance chemicals businesses and 17% for Valvoline.

Jana will likely pressure Ashland to sell the three underperforming businesses, David Begleiter, an analyst at Deutsche Bank, told investors in a recent report. “Given Jana’s track record of advocating for and success in effecting corporate change, primarily through asset sales and divestitures, we believe Jana’s involvement with Ashland will likely accelerate” the sales.

In a filing with the Securities & Exchange Commission disclosing its stock purchase, Jana said it has had discussions with Ashland’s management about corporate structure, strategy, and future plans.

Jana made a similar effort at fertilizer firm Agrium, but it failed earlier this month to get any of its five nominees elected to Agrium’s board. Meanwhile, activist investors at Quinpario Partners, founded by former Solutia CEO Jeffry N. Quinn, are seeking strategic changes at the carbon fiber firm Zoltek and the specialty chemical maker Ferro.