Ashland to sell water treatment to private equity for $1.8 billion

16:05 PM | February 18, 2014 | Vincent Valk

Ashland announced today it has agreed to sell its water treatment business to private equity firm Clayton, Dubilier & Rice (CD&R; New York) for $1.8 billion, ending a months-long divestiture process. The deal will result in $1.4 billion in net proceeds to Ashland, of which $1.35 billion will go towards a new share repurchase program. The water treatment business generates $1.7 billion/year in revenues, 67% of which is derived from pulp and paper sales and 33% of which is from industrial and municipal water treatment sales.

"This divestiture allows us to focus on our core specialty chemicals business and to accelerate return of capital to shareholders, while water technologies should have an opportunity to invest in continued growth under new ownership. We believe this transaction, when combined with our ongoing global restructuring, will help position Ashland for Ebitda margins that rank among the top 25% of specialty chemical companies,” says Ashland chairman and CEO James O’Brien.

The water treatment business, among the largest operations in its sector, has 31 manufacturing facilities spread across 17 countries and over 3,000 employees. John Panichella, current head of the segment, will remain on as CEO of the newly independent company. The divestiture is expected to close on 30 September, the end of Ashland’s fiscal year. "We are excited to be partnering with John Panichella and the [Ashland water treatment] management team and look forward to working with them to move the business forward to its next level of profitable growth," says CD&R partner David Wasserman.

The segment, called water technologies, was Ashland’s third-largest by sales in 2013 and was the subject of a restructuring effort in the months leading up to the divestiture. Water technologies’ operating income totaled $80 million in 2013, up 11.1% year-on-year from 2012. Profit margins also improved from 2012 to 2013.

Ashland confirmed its intent to sell the water technologies business during an earnings release in November of last year, after a review process that was launched in July. Speculation about the deal had been long focused on the likelihood of a private equity buyer. Ashland is also looking to sell its $330-million elastomers business. After the water sale closes, Ashland will reorganize its three remaining segments—specialty ingredients, performance materials, and Valvoline—creating two businesses within specialty ingredients and cutting about 800–1,000 jobs.