Marathon Closes on MAP Buyout


Marathon Oil Corp. on Thursday completed its buyout of Ashland Inc.s stake in their Marathon Ashland Petroleum joint venture. The long-awaited $3.7 billion deal gives Marathon sole ownership of two plants that supply ingredients to the lubricants industry: the joint ventures base oil plant at Catlettsburg, Ky., and a maleic anhydride business that was solely owned by Ashland.

Marathon also acquired 60 Valvoline Instant Oil Change centers in Michigan and northwestern Ohio.

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The transaction would seem to elevate the importance of Ashlands Valvoline segment, a marketer of motor oils and other automotive lubricants, as well as car care products. In 2004, Ashland had overall operating income of $662 million. Valvoline accounted for $105 million, or 16 percent. Had it not been for $383 million in proceeds from MAP, however, Valvolines operating income would have been 38 percent of Ashlands total.

The completion of the buyout also puts Ashland in position to shop for other businesses. The Covington, Ky., company said it will use approximately $2.5 billion of the proceeds to pay off debt and other obligations, leaving itself with a cash surplus of approximately $1.1 billion. Officials said the company will look for targets that compliment its existing businesses. Besides Valvoline, Ashland has three segments: Ashland Specialty Chemical; chemical distributor Ashland Distribution; and road builder APAC.

When acquisitions provide the opportunity to strengthen our core businesses and to deliver economic value to our shareholders, we will carefully consider them, Chairman and Chief Executive Officer James J. OBrien said.

Marathon and Ashland first agreed in March 2004 for the latter to sell its 38 percent stake in MAP, but completion of the deal was delayed by Ashlands attempts to reach an agreement with the Internal Revenue Service that the transaction would be tax-free. After renegotiating some terms, the companies announced a month ago that they would close on the deal without firm assurances from the IRS. Ashland said it expects the transaction will be tax-free.

The deal has led some in the U.S. lubricants industry to speculate about the outlook for the Catlettsburg base oil plant, which has capacity to produce 6,700 barrels per day of Group I stocks. With base oil demand in the United States shifting from Group I to Group II stocks, observers generally agree that at least one Group I plant is likely to close in coming years, and the Catlettsburg plant has been mentioned as a possible candidate. Marathon officials could not be reached for comment yesterday.

In addition to the joint ventures refining assets and the VIOC centers, Houston-based Marathon received Ashlands maleic anhydride business, including a plant adjacent to the Catlettsburg refinery, in Neal, W.Va. Among other applications, maleic anhydride is a key ingredient of dispersants used in lubricants. Supply has been exceptionally tight during the past year, largely due to plant closures in recent years and increased competing demand from other industries.

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