$3.3 Billion Transaction Creates Major, Global Specialty Chemicals Company
COVINGTON, Ky. and WILMINGTON, Del., July 11 /PRNewswire-FirstCall/ --
Ashland Inc. (NYSE: ASH) and Hercules Inc. (NYSE: HPC) today announced that
they have entered into a definitive merger agreement under which Ashland
would acquire all of the outstanding shares of Hercules for $18.60 per
share in cash and 0.093 of a share of Ashland common stock for each share
of Hercules common stock. The total transaction value is approximately $3.3
billion, or $23.01 per Hercules share based on Ashland's July 10 closing
stock price and including $0.7 billion of net assumed debt. The
transaction, which would create a major, global specialty chemicals
company, is expected to close by the end of calendar 2008.
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With sales in more than 100 countries, Ashland is a manufacturer of
specialty chemicals, a leading distributor of chemicals and plastics, and a
provider of automotive lubricants, car-care products and quick-lube
services. Hercules is a leader in specialty additives and ingredients that
modify the physical properties of water-based systems and is one of the
world's leading suppliers of specialty chemicals to the pulp and paper
industry.
Upon the transaction's close, Ashland will have pro forma combined
revenue for the 12 months ended March 31, 2008, of more than $10 billion,
including approximately $3.5 billion generated outside North America. For
the same period, Ashland generated earnings before interest, taxes,
depreciation and amortization (EBITDA) of $365 million excluding certain
items, while Hercules reported ongoing EBITDA of $392 million excluding
certain items. Specialty chemicals, which on a pro forma basis represents
approximately 75 percent of total EBITDA, will serve as Ashland's primary
platform for future growth.
Ashland Chairman and Chief Executive Officer James J. O'Brien said,
"The acquisition of Hercules fulfills our objective to become a leading
specialty chemicals company. It creates a defined core for Ashland composed
of three specialty chemical businesses with strong market positions and
promising global growth potential: specialty additives and ingredients,
paper and water technologies, and specialty resins. In addition, we expect
our financial profile to be enhanced significantly through reduced earnings
volatility, improved profitability and stronger cash flow generation."
Hercules President and Chief Executive Officer Craig A. Rogerson said,
"We are enthusiastic about the opportunity to combine Hercules with
Ashland. Our companies share proud and similar histories of nearly 100
years of innovation, dedication and service. Hercules shareholders will
receive a significant premium over the current trading price for their
shares and, through their ownership of Ashland shares, the opportunity to
participate in the upside potential of the combined company. We look
forward to working with Ashland to bring these two great companies
together."
In specialty additives and ingredients, Hercules' Aqualon business is
one of the most recognized and admired specialty chemical brands in the
world and brings Ashland a significant market position in rheology
modifiers, which alter the physical properties of water-based systems.
These additives are used across a wide range of industries to make
everything from adhesives and paints to foods, pharmaceuticals and personal
care products. Nearly all of Aqualon's additive products are water soluble
polymers derived from renewable materials. The combined company generates,
on a pro forma basis, approximately one-third of EBITDA from bio-based or
renewable chemistries.
"We will combine the paper and water businesses of each company to
create one global paper and water technologies business with annual revenue
of $2 billion," said O'Brien. "In particular, Hercules' leadership position
in pulp and paper technologies bolsters our participation in one of the
world's largest water treatment markets. The combined businesses will
provide the scale to leverage opportunities in other key water treatment
markets including municipal, industrial and marine.
"The third business within our new core -- specialty resins -- is one
where Ashland has long enjoyed a strong reputation for innovation and
service. A broader international footprint will offer the specialty resins
business expanded global growth opportunities in key building and
construction markets, including infrastructure and wind energy. In
addition, our Distribution and Valvoline businesses provide complementary
capabilities and share similar markets with the specialty chemical
businesses," said O'Brien.
Ashland expects to realize annualized run-rate cost savings of at least
$50 million by the third year following the transaction's close by
eliminating redundancies and capturing operational efficiencies. In the
first year following the transaction's close, while the combination is
modestly dilutive to earnings per share on a reported basis, it is expected
to be significantly accretive to Ashland's earnings per share excluding
merger costs and noncash depreciation and amortization charges resulting
from the transaction.
O'Brien continued, "We are extremely impressed with the quality of the
Hercules people and we look forward to welcoming them into the Ashland
family. Our companies share a common desire to live up to our own high
expectations, and those of our customers, shareholders and the communities
in which we operate. We are also very pleased that John Panichella,
president of Hercules' Aqualon Group, and Paul Raymond, president of
Hercules' Paper Technologies and Ventures Group, have agreed to join
Ashland after the close of the transaction, reporting directly to me. In
addition, we expect to maintain a significant presence in Wilmington, Del.,
where Hercules is headquartered.
"An integration team with members from both organizations will
determine how best to utilize the strengths and scale of the combined
company worldwide. We will work with the Hercules team to ensure a smooth
transition," concluded O'Brien.
Transaction Details
The merger is conditioned upon, among other things, the approval of
Hercules' shareholders, the receipt of regulatory approvals and other
customary closing conditions. Assuming the satisfaction of these
conditions, the transaction is expected to close by the end of calendar
2008.
The cash portion of the consideration will be funded through a
combination of cash on hand and committed debt financing from Bank of
America and Scotia Capital, subject to customary terms and conditions.
Ashland plans to use the cash flows of the combined organization to pay
down debt with a goal of attaining investment-grade credit ratings within
two to four years after closing the transaction.
Under the terms of the definitive merger agreement, Hercules would be
required to pay Ashland a fee of $77.5 million under certain circumstances
including if Hercules terminates the merger agreement to accept a superior
offer, and Ashland would be required to pay Hercules a fee in the same
amount if the transaction is not completed due to a failure to obtain
financing at the time the conditions to the merger have been satisfied.
Citigroup Global Markets Inc. acted as financial advisor, and Squire,
Sanders & Dempsey LLP acted as legal counsel, to Ashland. Credit Suisse
Securities (USA) LLC acted as financial advisor, and Wachtell, Lipton,
Rosen & Katz acted as legal counsel, to Hercules.
Conference Call and Webcast
Ashland and Hercules will host a conference call with securities
analysts today at 9:30 a.m., EDT, to discuss the transaction. Investors,
the news media, and others may listen to a live webcast of the call at
http://www.ashland.com or http://www.herc.com by clicking on an available audio link.
Real Network's Real Player or Microsoft Media Player is required to access
the webcast. They can be downloaded from http://www.real.com or http://www.microsoft.com.
Ashland Inc. (NYSE: ASH), a diversified, global chemical company,
provides quality products, services and solutions to customers in more than
100 countries. A FORTUNE 500 company, it operates through four divisions:
Ashland Performance Materials, Ashland Distribution, Valvoline and Ashland
Water Technologies. To learn more about Ashland, visit http://www.ashland.com.
Hercules manufactures and markets chemical specialties globally for
making a variety of products for home, office and industrial markets. For
more information, visit the company's website at http://www.herc.com.
FORTUNE 500 is a registered trademark of Time Inc.
Regulation G
The information presented in this earnings release regarding adjusted
earnings per share and earnings before interest, taxes, depreciation, and
amortization (EBITDA) does not conform to generally accepted accounting
principles (GAAP) and should not be construed as an alternative to the
reported results determined in accordance with GAAP. Management has
included this non-GAAP information to assist in understanding the operating
performance of the Company and its operating segments. The non-GAAP
information provided may not be consistent with the methodologies used by
other companies. All non- GAAP information is reconciled with reported GAAP
results in financials provided below.
Regulation G:
Reconciliation of Operating Income to EBITDA
(in millions)
Trailing
12 Months Ended
Ashland Inc. March 31, 2008
Operating income $ 215
Non-North American entities
reporting lag (5)
Due diligence related
to potential growth opportunities 8
Depreciation and amortization 147
EBITDA $ 365
Regulation G: Reconciliation of Income Before Income Taxes, Minority
Interest and Equity (Loss) Income to EBITDA
(in millions)
Trailing
12 Months Ended
Hercules Inc. March 31, 2008
Income before income taxes,
minority interest and equity (loss)
income - revised* $ 188
Vertac matters 19
ABL 13
Severance and restructuring costs 23
Gain on asset dispositions (7)
Pension accounting change pre LDI
implementation (31)
Other 9
Interest and debt expense 68
Depreciation and amortization,
net of debt issuance 110
EBITDA $ 392
*Effective Jan. 1, 2008, Hercules elected to change its method of
accounting for its qualified defined-benefit pension plans in the United
States and United Kingdom. This change in accounting method increased
income in this caption by $42 million during this 12-month period.
Forward-Looking Statements
This document contains forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include those that refer
to Ashland's and Hercules' current expectations about the acquisition of
Hercules. Although Ashland and Hercules believe their expectations are
based on what management believes to be reasonable assumptions, they cannot
assure the expectations reflected in this document will be achieved as they
are subject to risks and uncertainties that are difficult to predict and
may be outside of Ashland's and Hercules' control. These risks and
uncertainties may cause actual results to differ materially from those
stated, projected or implied. Such risks and uncertainties include the
possibility that the benefits anticipated from the Hercules transaction
will not be fully realized; the possibility the transaction may not close,
including as a result of failure to obtain the approval of Hercules
stockholders; the possibility that financing may not be available on the
terms committed; and other risks that are described in filings made by
Ashland and Hercules with the Securities and Exchange Commission (SEC) in
connection with the proposed transaction. Other factors, uncertainties and
risks affecting Ashland and Hercules are contained in each company's
periodic filings made with the Securities and Exchange Commission,
including Ashland's Form 10-K for the fiscal year ended Sept. 30, 2007,
Ashland's Form 10-Q for the quarter ended March 31, 2008, Hercules' Form
10-K for the fiscal year ended Dec. 31, 2007, and Hercules' Form 10-Q for
the quarter ended March 31, 2008 filed with the SEC and available on
Ashland's Investor Relations website at http://www.ashland.com/investors or
Hercules' website at http://www.herc.com or the SEC's website at http://www.sec.gov.
Ashland and Hercules undertake no obligation to subsequently update or
revise the forward-looking statements made in this document to reflect
events or circumstances after the date of this document.
ADDITIONAL INFORMATION
In connection with the proposed transaction, Ashland and Hercules will
be filling documents with the SEC, including the filing by Ashland of a
registration statement on Form S-4, and the filing by Hercules of a related
preliminary and definitive proxy statement/prospectus. Investors and
security holders are urged to read the registration statement on Form S-4
and the related preliminary and definitive proxy/prospectus when they
become available because they will contain important information about the
proposed transaction. Investors and security holders may obtain free copies
of these documents (when they are available) and other documents filed with
the SEC at the SEC's web site at http://www.sec.gov and by contacting Ashland
Investor Relations at (859) 815-4454 or Hercules Investor Relations at
(302) 594-7151. Investors and security holders may obtain free copies of
the documents filed with the SEC on Ashland's Investor Relations website at
http://www.ashland.com/investors or Hercules' website at http://www.herc.com or the SEC's
website at http://www.sec.gov.
Hercules and its directors and executive officers may be deemed
participants in the solicitation of proxies from the stockholders of
Hercules in connection with the proposed transaction. Information regarding
the special interests of these directors and executive officers in the
proposed transaction will be included in the proxy statement/prospectus
described above. Additional information regarding the directors and
executive officers of Hercules is also included in Hercules's proxy
statement for its 2008 Annual Meeting of Stockholders, which was filed with
the SEC on March 19, 2008. These documents are available free of charge at
the SEC's web site at http://www.sec.gov and from Investor Relations at Ashland
and Hercules as described above.
SOURCE Ashland Inc.
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Related links:
http://www.ashland.com
http://www.herc.com
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http://www.newscom.com/cgi-bin/prnh/20080711/HERCULESLOGO
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CONTACT:
Investors: Eric Boni of Ashland Inc.,
+1-859-815-4454, or enboni@ashland.com; or Stu Fornoff of
Hercules Inc., +1-302-594-7151, or sfornoff@herc.com; or Media:
Jim Vitak of Ashland Inc., +1-614-790-3715, or
jevitak@ashland.com; or John Riley of Hercules Inc.,
+1-302-594-6025, or jriley@herc.com
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