Investor urges Ashland to halt Valvoline spinoff


Michael Flaherty

Jan 19, 2016

One of Ashland Inc's (ASH.N) largest shareholders is urging the chemical maker to halt plans to spin off its Valvoline business and instead seek a buyer for its specialty chemicals unit, according to a slide presentation seen by Reuters.

Elmrox Investment Group LLC, which says it owns more than $100 million in Ashland stock, said Valvoline would be more valuable as a stand-alone company and suggested it be structured as a master limited partnership.

As for the specialty chemicals arm, which makes compounds that go into personal care products, pharmaceuticals, and energy industry fluids, Elmrox says the division could be acquired for roughly twice the multiple the entire company currently commands.

Elmrox cited the proposed merger of DuPont (DD.N) and Dow Chemical Co (DOW.N) as an example of industry consolidation.

The hope is for Ashland shareholders to collect some change-in-control premium while the "iron is hot", Don Bilson, head of event-driven research at Gordon Haskett, wrote in a research note.

"That said, we don’t see the market for chemical deals to be red hot at the moment," Bilson said in the note.

Ashland shares opened lower on Wednesday, hitting $93.62 and then rebounded, inching up 0.3 percent to around $96.50 toward the end of the session.

Last year, Covington, Kentucky-based Ashland said it would spin off Valvoline, its engine lubricants unit, into a publicly traded company, as it seeks to shed assets that are not part of its core specialty chemicals business.

The spinoff would help mark the final step in Ashland's decade-long shift from an oil refiner to a specialty chemicals maker, the company said in September.

Prior to Elmrox's push for change, which includes suggesting the company grant the investor representation inside its board room, activist Jana Partners had targeted Ashland.

Jana bought a 7.4 percent stake and pushed for changes in the company’s structure and better capital returns, a campaign that helped lead to sales of several non-core businesses. Jana sold its stake early last year, according to filings.

Elmrox says in its presentation that if Valvoline, which makes motor oil and automotive chemicals and also operates retail repair shops, was structured as a master limited partnership and the chemicals business sold, Ashland investors could see total value of more than $250 per share.

"We are confident that our planned separation of Ashland into two great independent, public companies is our best path forward to enhance shareholder value," Ashland spokesman Gary Rhodes said in a statement.

(Reporting by Michael Flaherty in New York; Additional reporting by Sneha Teresa Johny in Bengaluru; Editing by Paul Simao and Lisa Shumaker)