Ashland Outlines Valvoline IPO


As part of its spin-off of Valvoline Inc., Ashland hopes to raise up to $690 million in an initial public stock offering that constitutes at least a 15 percent stake in the new company.

The IPO on the New York Stock Exchange would put up at least 30 million shares of common stock, with an additional 4.5 million shares available in case of over-allotments. Ashland would retain 170 million shares of Valvoline, which will be listed under the symbol VVV.

In September 2015, Covington, Kentucky-based Ashland announced it would spin off Valvoline of Lexington, Kentucky. The IPO prospectus indicates that after the completion of the IPO, Ashland will continue to control a majority of the voting power of Valvolines common stock. As a result, the prospectus noted that Valvoline would be a controlled company within the meaning of the NYSE listing standards.

Ashland filed its registration statement with the U.S. Securities and Exchange Commission for the proposed IPO on Sept. 12, though it has not yet become effective. The securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective.

We expect the public offering price to between $20 and $23 per share, Ashland stated in its prospectus in the registration statement. The company noted the information in the prospectus is not complete and may be changed.

In the spin-off announcement last September, Ashland said Valvolines lubricants business was positioned for growth in quick lube and international markets. The IPO prospectus reiterated that point, stating that Valvolines business and growth strategy included growing and strengthening its quick lube network and accelerating international growth across key markets – citing primary targets such as China, India and select countries in Latin America, including Mexico.

For fiscal 2015, Valvoline generated $2 billion in sales, and $196 million in net income, according to the prospectus.

George Morvey, industry manager for Kline & Co.s Energy Practice, said the Valvoline IPO seems to me like its a win-win for Ashland. Its a way to generate more cash as the value of Valvoline likely increases during the initial IPO.

Consultant Geeta S. Agashe, president of Geeta Agashe & Associates LLC, explained that the typical first reason for an IPO is raising money at attractive rates for a company, which could be used in many beneficial ways, such as to pursue growth strategies, for business development purposes and improved research and development. However, in this instance, I believe that Ashland – the 85 percent owner – could use the money obtained from the IPO to primarily pay off its own debts, Agashe told Lube Report.

She added that other typical goals of an IPO are to maximize shareholder value – in this case for Ashland, which owns Valvoline – and to create an acquisition strategy, in case Valvoline wants to acquire other companies in the future, as their shares will be good currency. An IPO can also improve public awareness about a company and thereby increase its market share, Agashe noted.

An IPO can also bring challenges. The disadvantages are that Valvoline will need to provide added disclosure for their investors, she said. There will be added cost from complying with the numerous regulatory requirements. There will also be increased pressure to focus on short-term results perhaps at the cost of long-term growth. And last, the actions of the company management will become heavily scrutinized, as it will now become a stand-alone entity.

Agashe said she believed Valvoline is a great asset for Ashland. This could be a way for Ashland to monetize the value and generate some much-needed cash, she noted. Valvoline does not particularly fit the vision and strategy for Ashland – this way Ashland can focus on its high-margin specialty chemicals business.

The spin-off plan unveiled last September also called for creation of a separate, new Ashland specialty chemicals company.

The registration statement for the IPO, including prospectus, may be viewed on the SEC web site at this link.

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