Clayton Dubilier to Buy Ashland Unit for $1.8 Billion

Clayton Dubilier & Rice LLC, one of the oldest private-equity firms, agreed to buy Ashland Inc. (ASH)’s water-technologies unit for about $1.8 billion to operate as a stand-alone business.

The transaction should close by Sept. 30, New York-based Clayton Dubilier said in a statement today. Ashland’s net after-tax proceeds will be about $1.4 billion and will be used to fund a $1.35 billion buyback plan, replacing a program with $450 million remaining, the Covington, Kentucky-based company said in a separate statement.

Ashland’s decision to sell the water unit came six months after activist investor Jana Partners LLC disclosed a stake in the chemicals maker. Ashland’s also trying to sell its synthetic rubber unit to focus on additives used in cosmetics and pharmaceuticals that came with the $3.2 billion purchase of International Specialty Products Inc. in 2011.

Exiting water chemicals would raise Ashland’s 2015 earnings before interest, taxes, depreciation and amortization to 17.6 percent of sales, compared with a 16.2 percent Ebitda margin currently, Laurence Alexander, a New York-based analyst at Jefferies LLC. who recommends holding the shares, said in a note today.

Ashland fell 0.3 percent to $95.88 at the close in New York. The shares have fallen 1.2 percent this year.

Activist Investor

The water-technologies unit had operating income of $80 million in the 12 months through September on sales of $1.72 billion, according to data compiled by Bloomberg. The pulp and paper industry accounts for two-thirds of sales, Clayton Dubilier said. It also serves markets for power generation, mining, oil and gas refining and chemical production.

Jana, Ashland’s third-largest shareholder, disclosed its stake in May and in July the chemical maker began a strategic review of its operations. Activist investors amass equity stakes and try to force management and boards to make changes that boost shares and investor returns. Ashland said in November it would exit the water-chemicals business.

The unit employs about 3,000 people and operates 31 manufacturing plants in 17 countries. John Panichella will continue to run the business as chief executive officer, and Lewis Hay III, former chairman and CEO of NextEra Energy Inc., will serve as chairman.

Clayton Dubilier made one of three bids for the Ashland unit as of a Feb. 10 deadline, people familiar with the matter said last week. Blackstone Group LP in association with Danaher Corp. and Rhone Group LLC also made offers, the people said.

Clayton Dubilier, founded in 1978, was advised by Bank of America Merrill Lynch, Credit Suisse Group AG, Goldman Sachs Group Inc., Macquarie Capital, Nomura Securities International Inc. and RBC Capital Markets. Debevoise & Plimpton LLP acted as legal adviser. Squire Sanders LLP and Cravath, Swaine & Moore LLP were legal advisers to Ashland.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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