MAP Divestiture Appears Doomed


Ashland Inc. announced Monday that the Internal Revenue Service has decided not to give a tax ruling that the company had set as a prerequisite for its proposed sale of its 38 percent stake in the Marathon Ashland Petroleum joint venture. Ashland said it will probably keep its MAP assets – at least for the time being – including a Group I base oil plant in Catlettsburg, Ky.

If the IRS decision does doom the divestiture, it will also forestall a significant restructuring plan by Ashland, the parent company of motor oil marketer Valvoline.

Ashland and Marathon disagree with the IRS’ position on [one of the tax issues] and will attempt to further discuss this issue with the IRS, Ashland said in a written statement. However, Ashland believes that it is unlikely that the previously announced transaction will close.

Formed in 1997, Marathon Ashland has seven refineries that together account for 6 percent of U.S. refining capacity. The joint venture has been a significant source of revenue for Ashland, but the Covington, Ky., company said its revenues would be more predictable if it exited the cyclical refining industry. Moreover, the deal that formed the joint venture gaveAshlandthe opportunity to sell out to Marathon, of Finlay, Ohio.

In March the companies announced a tentative agreement for Marathon to buy Ashlands stake, plus Ashlands maleic anhydride business and 61 Valvoline Instant Oil Change centers for $3 billion in cash, stock and assumed debt. The deal hinged on several conditions, however, including an agreement by the IRS to treat the transaction as tax neutral. From the beginning, Ashland acknowledged that the IRS might not rule in its favor.

On Monday the company disclosed that the agencywould not. According to Ashland, an IRS stance on one particular issue would significantly increase the amount of the transaction that would have to be counted as capital gain – thereby increasing Ashlands tax liability.

If the proposed transaction is not completed, Ashland said it will consider alternatives for the transfer of its interest to Marathon, but it added that it is possible that it will not identify an alternative deal.

MAPs refining assets include a Catlettsburg complex with a base oil plant that has capacity to produce 8,800 barrels per day of Group I stocks.

Ashland has several other wholly-owned businesses, including automotive consumer products marketer Valvoline. The parent company had said it would use income from the MAP divestiture to reduce debt and for strategic acquisitions.

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