Valvoline produces and distributes premium-branded automotive, commercial and industrial lubricants, automotive chemicals and care-care products.

Separating into two public companies will enable each to focus on its specific business and strategic priorities, Ashland Chairman and CEO William Wulfsohn said in a news release. For Valvoline, it means building the worlds leading engine and automotive maintenance business by providing hands-on expertise to customers around the world.

Wulfsohn will serve as non-executive chairman of Valvoline following the separation, and Sam Mitchell, currently senior vice president of Ashland and president of Valvoline, will serve as CEO. Ashland earlier this year announced plans to build a $35 million, 145,000-square-foot office building on its Lexington, Kentucky, campus to house the Valvoline business unit and other Ashland corporate employees, with completion targeted for February 2017.

In its investor presentation, Ashland described Valvoline as a high-margin, low-capital-intensity branded products business positioned for growth in auto retail maintenance (Valvoline Instant Oil Change) and international markets.

Valvoline has the opportunity to enhance its truly unique, multi-channel automotive maintenance biz platforms by continuing to deliver an outstanding customer experience for a diverse set of customers, expanding the instant oil change network, sustaining strong international growth, continuing migration to higher-margin synthetic oil and accelerating our position supplying the heavy-duty equipment segment, Wulfsohn said during a conference call yesterday.

For the 12 months ending June 30, 2015, Valvoline posted $2 billion in revenues.

According to the presentation, Valvolines do-it-yourself sales accounted for 30 percent of its sales over the 12-month period, with international business making up 29 percent, the installer channel accounting for 22 percent and Valvoline Instance Oil Change for 19 percent. Valvoline operates and franchises about 940 Valvoline Instant Oil Change centers in the United States.

Lubricants accounted for about 85 percent of Valvolines sales over the 12-month period, followed by chemicals (8 percent), antifreeze (5 percent) and filters (2 percent).

During the conference call, Mitchell said a number of current market trends work in Valvolines favor. For example, increasing sales of autos in China and solid industrial growth in industrial regions such as Asia and Latin America are driving demand for premium lubricants, he said. We can take full advantage of opportunities with an investment strategy focused exclusively on our growth – such as with heavy-duty lubricants and new stores.

He noted that the company believes now is the right time for Valvoline to emerge as a standalone company. On our own, well be able to allocate money and resources more effectively, Mitchell said. In addition, Valvoline will attract investors who have a greater appreciation and support for our long term vision. We recognize that with this announcement, Valvoline will be under increased scrutiny from investors, as well have to prove we can consistently deliver strong financial performance. We intend to do just that.

During a Q&A call with investment analysts, Mitchell said that while Valvoline will evaluate opportunities to acquire other companies, they will probably be less on the transformational side. When you consider the strength of the Valvoline Instant Oil Change model, that area is obviously an area of interest for us, he said. Helping growth internationally is another area well be interested in taking a harder look at. We really plan on acquisition opportunities being close to the business model and the current strength.

Industry consultant Geeta S. Agashe, president of Geeta Agashe & Associates LLC, said she was not surprised by Valvolines announcement and saw it as a good thing for the company, the lubricants industry and its shareholders.

Ashland loves Valvoline, but it didnt quite fit into the scheme of things for how they wanted to position Ashland for the future, Agashe told Lube Report. They were trying to refocus as a specialty chemicals company as they felt thats where their future lies. This will really open more doors for Valvoline and create increased focus on its strategic objectives and market priorities.

Agashe said many companies in the lubricant and financial industries have looked at Valvoline over the years as a possible acquisition target, though no deal ever materialized. If an acquirer wants to get a good, strong foothold in the lubricants arena, Valvoline obviously comes up as a very good candidate given their market share here in the U.S. on the consumer automotive side, and also with their VIOC chain, she said. People also really prize their relationship with Cummins. That opened the door for them into a lot of the international markets.

Agashe said she would not be surprised if Valvoline now considers a potential acquisition, alliance, or joint venture. I know Valvoline understands that it has to grow even more aggressively internationally, including with its VIOC franchise, but that it also needs to bolster its presence in the commercial and industrial segments, she said.

She noted Valvoline had grown a lot internationally over the past 15 to 20 years, strengthened by its relationship with Cummins and other successful strategies. Going 20 years back, I saw Valvoline as a very strong, top-tier consumer automotive player in the United States – but they were certainly not truly global, Agashe recalled. But today you see they have a growing presence in such mature markets as Europe and also in the new growth countries, including China, India and others. They will need to do a lot more of the same and pursue some out-of-the-box strategies if they want to enjoy continued profitable growth.

George Morvey, industry manager for Parsippany, N.J.-based consultancy Kline & Co.s Energy Practice, said Ashlands move to separate into two independent publicly traded companies is probably not a surprise to the industry as Ashland has been shedding businesses and divisions over the last few years to better position itself financially and competitively.

Kline sees Valvoline well positioned in the finished lubricants market, specifically automotive lubricants, Morvey told Lube Report. Its supply agreement with Cummins will continue to pay dividends, especially in the developing world, and build consumer awareness and loyalty to the Valvoline brand. On the consumer side, it has a leading position in the fast lube segment, which is the leading installed service provider in the U.S. with its VIOC business.

He noted that Valvoline also enjoys supply agreements with some of the leading operators in the tire, brake and muffler segment, the number three segment behind new car dealerships. Perhaps being independent from Ashland might free up Valvoline to develop and launch the next MaxLife product into the marketplace, Morvey said.

Ned Zimmerman, Chemicals Group leader for Cleveland-based industry market research firm Freedonia Group, said in many ways the announcement represents a logical conclusion to the dismantling of Ashland that began several years ago when it got out of the refining business.

The potential synergies that existed between the refining business – including retail fuels – and the Valvoline automotive solutions business ceased to exist at that point, as did any potential raw material synergies from the refining and specialty chemical portions of the business, Zimmerman told Lube Report. There was little tying these two parts of Ashland together.

He noted that public companies are increasingly under pressure to show how they are maximizing shareholder value. In companies with very distinct product lines that each have different trajectories, this often leads to a separation of the businesses, Zimmerman explained. In Ashlands case, they have the specialty chemicals and performance materials, which offer potentially faster growth; and automotive solutions – mostly lubricants – which faces more limited growth prospects but have generally high margins and strong free cash flow.

The specialty chemicals industry has been undergoing years of consolidation, he said, with companies looking to combine a variety of technologies all serving key markets. In all likelihood the new Ashland will be bought or merge in the next few years with another specialty chemicals company, he said. However, this would have been much less likely when Ashland still had a large share of its revenue tied to the slower growing lubricants industry.

The Valvoline portion of the company will face its own challenges, he pointed out, because it is heavily focused on automotive lubricants and other automotive products, with limited exposure in the faster growing markets.

High margins and a strong brand presence in the established North American and European markets mean plenty of free cash flow, which will be attractive to some investors, Zimmerman said. However, to generate growth, the company will need to effectively penetrate markets where it doesnt have a significant presence. This will be a challenge and likely require the company to invest heavily in marketing and building up new distribution channels in these newer markets. For the lubricants industry, this will mean an even tougher competitive environment going forward, especially if Valvoline makes good on their goals of increasing market share in their existing markets.