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Ashland Signs Amended Agreement to Transfer Interest in MAP to Marathon for $3.7 Billion

Ashland Inc : 28 April, 2005  (Company News)
Ashland Inc. today announced that it has amended its agreement to transfer its 38-percent interest in Marathon Ashland Petroleum LLC (MAP) and two other businesses to Marathon Oil Corporation.
Under the amended agreement, Ashland's interest in these businesses is valued at approximately $3.7 billion compared to approximately $3 billion in the earlier agreement, with substantially all the increase in value going directly to Ashland's shareholders in the form of Marathon stock. In addition, Marathon has agreed to pay the first $200 million of any Section 355(e) tax, if any, as compared to the prior agreement where Ashland bore full responsibility for any Section 355(e) tax.

The transaction is expected to be tax free to Ashland's shareholders and tax efficient to Ashland. The two other businesses are Ashland's maleic anhydride business and 60 Valvoline Instant Oil Change (VIOC) centers in Michigan and northwest Ohio, which are valued at $94 million.

Under the terms of the amended agreement, Ashland's shareholders will receive Marathon common stock with an aggregate value of $915 million. Based on the number of shares outstanding on March 31, 2005, shareholders would receive $12.56 in Marathon stock per Ashland share. Ashland will receive cash and MAP accounts receivable totaling $2.8 billion. In addition, MAP has not made quarterly cash distributions to Ashland and Marathon since March 18, 2004, and such distributions will continue to be suspended until the closing of the transaction. As a result, the final amount of cash to be received by Ashland will be increased by an amount equal to 38 percent of the cash accumulated from operations during the period prior to closing. At March 31, 2005, Ashland's share of this accumulated cash was $560 million.

Under the terms of the earlier agreement, the closing was conditioned on receipt of private letter rulings from the Internal Revenue Service with respect to certain tax issues. Under the terms of the amended agreement, Ashland and Marathon expect to enter into a closing agreement with the IRS that will resolve these tax issues. Under the closing agreement, the retention by Ashland of certain contingent liabilities related to previously-owned businesses will reduce Ashland's tax basis.

The company estimates this basis reduction may increase any Section 355(e) tax on the transaction by approximately $66 million. Marathon has agreed to pay the first $200 million of any Section 355(e) tax. Ashland would pay up to the next $175 million of Section 355(e) tax, if required. Any remaining Section 355(e) tax would be shared equally by Ashland and Marathon. Based on the number of Ashland shares outstanding as of March 31, 2005, and the company's current estimate of Ashland's tax basis, the company expects that Ashland would be required to pay Section 355(e) tax only if Ashland's stock price on the closing date exceeds approximately $74.50 per share.

Ashland intends to use a substantial portion of the transaction proceeds to retire all or most of the company's outstanding debt and certain other financial obligations. After payment of these obligations and including the company's current estimate of MAP's final cash distribution, Ashland expects to have a net cash position of roughly $1.1 billion.

'We are pleased that our amended agreement provides an additional $700 million in value, $600 million of which will go directly to our shareholders,' said James J. O'Brien, Ashland's chairman and chief executive officer. 'Ashland's Board of Directors took a comprehensive look at the alternatives available to Ashland with respect to our ownership interest in MAP. We concluded that this tax efficient structure with an appropriate increase in shareholder value, as well as a significant reduction of Ashland's tax risk, was the best alternative.'

Mr. O'Brien also noted that Ashland has enjoyed good working relationships with both Marathon and MAP management. 'I want to thank Marathon for the successes we've shared through the MAP joint venture,' said Mr. O'Brien. 'We look forward to continuing our mutually beneficial business relationship as both a supplier and customer.'

Mr. O'Brien added, 'While Ashland has been pleased with MAP's performance, the transfer of our interest in MAP to Marathon is an important step in achieving Ashland's strategic objectives. We will have greater financial flexibility to pursue organic growth and will focus on selectively pursuing acquisitions that complement and strengthen our core businesses. I am confident that Ashland is well-positioned to create long-term value and to achieve our goal of top-quartile performance.'

The transaction is subject to, among other things, approval by Ashland's shareholders, consent from public debt holders, finalization of the closing agreement with the Internal Revenue Service and customary antitrust review. Ashland and Marathon have agreed to use their reasonable best efforts to complete the transaction by June 30, 2005, with the termination date for the transaction extended to September 30, 2005.

After the close of its transaction with Marathon, Ashland will own four divisions in two Sectors - Chemical and Transportation Construction - both of which are focused on meeting customers' needs, enabling growth through process improvement, and achieving top-quartile performance.

The Chemical Sector, which includes the Ashland Distribution, Ashland Specialty Chemical and Valvoline divisions, is creating a sustainable, low-cost business model, providing a platform for effective integration of acquisitions and driving market expansion. To enable growth, the Sector is also focusing on innovative research and the development of new products and services.

The Transportation Construction Sector, commercially known as Ashland Paving And Construction, Inc. (APAC), is executing strategies that should help it to increase its share of major projects, strengthen its marketing and business development capabilities and improve operational efficiency.

'As we integrate Ashland's businesses, we continue to find new sources of competitive advantage, creating actionable strategies with measurable targets and operating as a unified organization,' O'Brien said.

In connection with the transaction, Credit Suisse First Boston LLC acted as financial advisor, and Cravath, Swaine & Moore LLP acted as legal counsel to Ashland.
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