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Nov. 8 (Bloomberg) -- Ashland Inc., the maker of Valvoline motor oil, gained the most in 17 months in New York trading after the company agreed to sell its low-margin chemical distribution unit to TPG Capital for $930 million.

Ashland rose $4.86, or 9.5 percent, to $55.80 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest gain since May 18, 2009. The shares have increased 41 percent this year.

Ashland expects $825 million in after-tax proceeds from the transaction, which should close in February or March, Chief Executive Officer James O’Brien said today on a conference call with analysts. The business has been a part of Ashland for more than 40 years and had sales of $3.41 billion in the 12 months through September, the Covington, Kentucky-based company said.

“The price they got and the amount of cash they were able to deliver to shareholders are both at the upper end of what people thought they’d be able to get,” Dmitry Silversteyn, an Independence, Ohio-based analyst at Longbow Research, said in a telephone interview. “Without the distribution unit, the blended margin looks a lot more impressive.”

O’Brien has been negotiating since last year to sell non-strategic assets, including the chemical-distribution unit, after acquiring specialty chemicals maker Hercules Inc. for $2.28 billion. Ashland’s profit margins will rise with the sale of the distribution business, and the company plans to retain its remaining units, including Valvoline motor oil, O’Brien said.

‘The Future’

“We are going to ride these horses into the future,” O’Brien said. “These are the four businesses that we are supporting and growing.”

Ashland will use cash to make bolt-on acquisitions, probably no larger than $300 million, in its water-technologies and functional-ingredients units, although larger purchases are possible, O’Brien said. Ashland also will consider share repurchases and a bigger dividend, although not a one-time payment, he said.

The deal marks the third time in two months that TPG, the Fort Worth, Texas-based private-equity firm run by David Bonderman, has purchased assets from a public company shedding units.

TPG will finance the acquisition with $600 million of debt, according to a person briefed on the deal who asked not to be named because the terms are private.

Previous Transactions

Private-equity firms are buying public companies or their units as depressed stock valuations make boardrooms more receptive to buyouts. TPG last month teamed up with Washington-based ACON Investments LLC to acquire most of Marathon Oil Corp.’s Minnesota refining holdings for about $900 million, the firm’s largest investment in fuel making and delivery.

Last week, the firm agreed to buy the property-data unit of MacDonald, Dettwiler & Associates Ltd., the Richmond, British Columbia-based maker of the robotic arm used on NASA space shuttles, for about C$850 million ($846 million) after taxes.

“We are very excited to invest in Ashland Distribution, which Ashland has built into one of the leading global chemical distribution companies,” TPG partner Michael MacDougall said in a joint statement. “We look forward to partnering with management and the talented employees to continue the company’s growth.”

Bank of America Merrill Lynch advised Ashland on the transaction and Cravath, Swaine & Moore LLP acted as legal counsel. Citigroup Inc., Barclays Capital, and Morgan Stanley were the financial advisers to TPG Capital, and Vinson & Elkins LLP and Cleary, Gottlieb, Steen & Hamilton LLP acted as legal advisers.

To contact the reporters on this story: Jack Kaskey in New York at; Cristina Alesci in New York at

To contact the editors responsible for this story: Simon Casey at; Christian Baumgaertel at

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