Ashland to acquire Hercules in $3.3 billion deal
July 11, 2008, 1:26 p.m. EDT
NEW YORK (MarketWatch) -- Marking the second deal in the chemicals industry in as many days, Ashland Inc. agreed to acquire Hercules Inc. for about $3.3 billion in cash and stock, the companies said Friday.
The consideration works out to $23.01 for each share of Wilmington, Del.-based Hercules, equating to a buyout premium of about 38% over the shares' Thursday closing price.
Terms call for Ashland to acquire all outstanding Hercules common stock for $18.60 a share in cash as well as 0.093 of an Ashland common share.
Shares of Hercules rose nearly 25% at last check to $20.78. Ashland's shares, however, declined 15% to $40.29 amid a broader downturn in stocks after oil prices hit a new record high.
In an interview with MarketWatch, Chairman and Chief Executive Jim O'Brien said the transaction helps establish core businesses in specialty chemicals for various additives, paper and water technologies, and resins. It will also reduce the Covington, Ky.-based company's earnings volatility and improve cash flow.
Further, Hercules offers Ashland greater access to markets outside the U.S. Pending completion of the deal by the end of 2008, Ashland's annual overseas sales should jump to $3.5 billion from $2.3 billion, or about 45% of its total 2007 revenue.
"The U.S. is very competitive, and the real opportunities are outside U.S. boundaries," O'Brien said. "You have to have strong positions in Europe and Asia."
For example, O'Brien said Hercules' water treatment for paper mills complements his company's water services and utilities businesses.
The deal also gives Ashland greater access to China and the Middle East, where there's greater growth potential in municipality demand for water utilities.
Ashland expects to realize run-rate cost savings of at least $50 million by the third year following the closing of the acquisition.
The deal follows a chain of large chemical acquisitions in the past year as raw-material costs and end-market weakness has encouraged wider consolidation to reduce expenses, firm up product prices and gain greater access to emerging markets overseas.
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