Ashland Inc., parent company of Valvoline, Ashland Specialty Chemical and Ashland Distribution, announced Monday that it is exploring a possible spin-off or sale of another business, its wholly owned Ashland Paving and Construction subsidiary (APAC). If completed, the move would position Ashland squarely in the chemicals and motor oil business — and could fatten its already-rich bank account in preparation for other investments.
APAC, which is the country’s largest paver of highways, has assets of $1.6 billion and generated revenues of $2.5 billion in fiscal year 2005. That makes it roughly twice the size of Valvoline, which had 2005 assets of $700 million and revenue of $1.3 billion, but it is far less profitable. Valvoline’s contribution to Ashland’s 2005 operating income was $90 million, while APAC’s was only $48 million.
Last June, Ashland completed the $3.7 billion sale of its equity in the refining joint venture Marathon Ashland Petroleum to partner Marathon Petroleum. It used a portion of its proceeds to pay down debt, and has been seeking ways to put the remaining cash to work. A move now to sell APAC could signal a stronger desire to shift into the chemicals arena, suggested securities analyst Bentley Offutt, of Offutt Securities in Baltimore, Md.
“Ashland’s chemical distribution business is doing better lately,” he told Lube Report, “and while specialty chemicals can be cyclical, Ashland does seem to be showing a lot of interest in investing in water treatment chemicals. The question is what the effect will be on Valvoline. If it sells APAC, Ashland can no longer be considered a transportation company. It has no more refining assets now, and will not have APAC. So the question is, will Valvoline be the next to go? And who would buy it?”
Offutt, who follows the transportation sector, said it was not surprising that Ashland was considering divesting APAC. “They haven’t been able to make money from it for some time,” he said. He also noted that despite the opportunity presented by beefed-up federal spending on highway construction, APAC has not invested lately in equipment and asphalt plants — another sign of Ashlandsflagging interest in the business unit. “Some in the industry have felt that within a year something would happen with APAC. This is just sooner than expected.”
In Monday’s statement, Ashland said it would have no further comment until a decision has been made for or against keeping APAC. Meanwhile, it has entered into an exclusive negotiating period with Oldcastle Materials Inc. regarding the possible sale of the unit, and retained Credit Suisse Securities as its advisor in the process.