Filed by Ashland Inc. pursuant to Rules 165 and 425 promulgated under the
Securities Act of 1933, as amended, and deemed filed pursuant to Rule 14a-12
promulgated under the Securities Exchange Act of 1934, as amended.
Subject Company: Ashland Inc.
Commission File No.: 001-02918
(Excerpt from the April issue of SOURCE, a publication for
Ashland Inc. employees and NEXT PAGE, a publication
for Ashland Inc. retirees)
ASHLAND AGREES TO TRANSFER INTEREST IN MAP TO MARATHON
In March, Ashland announced that it has signed an agreement under
which Ashland would transfer its 38 percent interest in MAP and two other
businesses to Marathon in a transaction structured to be tax free and
valued at approximately $3.0 billion. The two other businesses are
Ashland's maleic anhydride business and 61 Valvoline Instant Oil Change
(VIOC) centers in Michigan and northwest Ohio, which are valued at $94
million.
Under the terms of the agreement, Ashland's shareholders would receive
Marathon common stock with a value of $315 million (or approximately $4.50
per Ashland share based on the number of shares currently outstanding).
Ashland would receive cash and MAP accounts receivable totaling $2.7
billion. MAP will not make quarterly cash distributions to Ashland and
Marathon between now and the closing of the transaction. As a result, the
final amount received by Ashland would be increased by an amount equal to
38 percent of the cash accumulated from operations during the period prior
to closing.
This transaction is one in a series of steps being taken to position
Ashland as a value-creating enterprise. Ashland's guiding principals now
and going forward are:
o To foster a winning culture,
o To maintain a patient and disciplined approach to growth,
o To take a process-centered approach to our businesses,
o And to sustain a top-quartile cost structure.
If concluded successfully, this transaction will eliminate the
uncertainty around the future of MAP. Beginning January 1, 2005, Marathon
has the right to call our interest in MAP at a 15 percent premium to fair
market value. Although comfortable with its rights under the joint-venture
contract, Ashland felt it was in our shareholders' interests to structure a
tax-free transaction. Given that the current tax basis in MAP is about $1.2
billion, a cash call would create a very large tax liability. The federal
capital gains rate for corporations is 35 percent. Additionally, the gain
would be taxable at the state level. Because this proposed transaction is
tax free, it offers the best value for Ashland and our shareholders.
In order to structure a tax-free spin-off, Ashland needed to include
active trades or businesses. Under IRS guidelines, MAP may not qualify
because it is a joint venture. The maleic anhydride business and VIOC
stores of Region 3 were chosen because they are complementary to Marathon's
business.
The transaction is subject to, among other things, approval by
Ashland's shareholders, customary antitrust review, consent of public debt
holders, and receipt of a favorable private letter ruling from the Internal
Revenue Service with respect to the tax treatment of the transaction. There
is meaningful risk that
the transaction will not receive the favorable ruling from the IRS, in
which case the transaction would not proceed. However, Ashland believes it
is more likely than not that this transaction will receive a favorable
ruling. If these conditions are met, the transaction is expected to close
by the end of the 2004 calendar year.
"This transaction represents the best opportunity for Ashland and its
shareholders to capture the value that has been created through this
joint-venture," said Jim O'Brien, Ashland's chairman and chief executive
officer. "While we have been pleased with both the performance of the joint
venture and our relationship with Marathon, the transfer of our interest in
MAP to Marathon is an important step in achieving our strategic
objectives."
TRANSACTION STEPS
The transaction would be accomplished through a series of steps, which
would all occur on the day of closing and in the following order:
1. MAP Partial Redemption. MAP would redeem a portion of Ashland's
38% interest in MAP for a redemption price likely to be in the
range of $900 million*, consisting of cash and MAP accounts
receivable. Because MAP will not make quarterly distributions
prior to the closing, such redemption price would increase by an
amount equal to 38% of the cash accumulated from MAP's operations
prior to closing.
2. Maleic/VIOC Contribution. Ashland would contribute the maleic
anhydride business and 61 Valvoline Instant Oil Change centers to
a newly formed subsidiary of Ashland ("HoldCo").
3. MAP Contribution. Ashland would contribute to HoldCo its remaining
interest in MAP.
4. The Reorganization Merger. As a preliminary step to the final
formation of New Ashland Inc., Ashland would be merged with and
into New Ashland LLC, which would be the surviving business entity
of that merger and a subsidiary of HoldCo.
o By virtue of this Reorganization Merger, each share of Ashland
common stock would be converted into and represent one share
of HoldCo common stock.
5. HoldCo Borrowing and Capital Contribution. Marathon would arrange
for a borrowing by HoldCo of $1.8 billion*, which would be
expressly non-recourse to New Ashland LLC and would otherwise be
made on terms and conditions reasonably acceptable to Ashland.
HoldCo would contribute to New Ashland LLC the proceeds of the
borrowing.
o The amount of the HoldCo borrowing would depend on the amount
of Ashland financings outstanding at closing that the Internal
evenue Service would permit Ashland to pay down with the
proceeds of the borrowing. If the amount of this borrowing is
increased (or decreased), the amount of the partial redemption
would be decreased (or increased) accordingly.
6. The Conversion Merger. New Ashland LLC would be merged with and
into New Ashland Inc., which would survive the merger. New Ashland
Inc. would be a wholly owned subsidiary of HoldCo.
7. Separation and Merger. HoldCo would be merged into a newly formed
subsidiary of Marathon, which would survive the merger.
o By virtue of the merger of HoldCo and the Marathon subsidiary,
the former Ashland shareholders (now holding HoldCo shares)
would have the right to receive, for each share of HoldCo
common stock, (1) one share of New Ashland Inc. common stock
and (2) a pro rata amount of shares of Marathon common stock
with a total value of $315 million (based on a 20-trading day
averaging period preceding the closing).
o For tax purposes, this merger would be treated as a spin-off
of New Ashland to shareholders followed by the merger of
HoldCo into the Marathon subsidiary.
* Note - The separate amounts received from MAP and HoldCo could vary from
these stated amounts, but in any event, the combination would equal
approximately $2.7 billion.
FORWARD-LOOKING STATEMENTS
This article contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include those that refer to
Ashland's operating performance and expectations about this transaction,
including those statements that refer to the expected benefits of the
transaction to Ashland's shareholders. Although Ashland believes its
expectations are based on reasonable assumptions, it cannot assure the
expectations reflected herein will be achieved. These forward-looking
statements are based upon internal forecasts and analyses of current and
future market conditions and trends, management plans and strategies,
weather, operating efficiencies and economic conditions, such as prices,
supply and demand, cost of raw materials, and legal proceedings and claims
(including environmental and asbestos matters) and are subject to a number
of risks, uncertainties, and assumptions that could cause actual results to
differ materially from those we describe in the forward-looking statements.
The risks, uncertainties, and assumptions include the possibility that
Ashland will be unable to fully realize the benefits anticipated from the
transaction; the possibility of failing to receive a favorable ruling from
the Internal Revenue Service; the possibility that Ashland fails to obtain
the approval of its shareholders; the possibility that the transaction may
not close or that Ashland may be required to modify some aspect of the
transaction to obtain regulatory approvals; and other risks that are
described from time to time in the Securities and Exchange Commission
reports of Ashland. Other factors and risks affecting Ashland are contained
in Ashland's Form 10-K for the fiscal year ended Sept. 30, 2003, filed with
the Securities and Exchange Commission (SEC) and available in Ashland's
Investor Relations website at www.Ashland.com/investors or the SEC's
website at www.sec.gov. Ashland undertakes no obligation to subsequently
update or revise the forward-looking statements made in this news release
to reflect events or circumstances after the date of this release.
ADDITIONAL INFORMATION ABOUT THIS TRANSACTION
Investors and security holders are urged to read the proxy
statement/prospectus regarding the proposed transaction when it becomes
available because it will contain important information. The proxy
statement/prospectus will be filed with the SEC by Ashland, and security
holders may obtain a free copy of the proxy statement/prospectus when it
becomes available, and other documents filed with the SEC by Ashland, at
the SEC's website at www.sec.gov. The proxy statement/prospectus, and other
documents filed with the SEC by Ashland, may also be obtained for free in
the SEC filings section on Ashland's Investor Relations
website at www.Ashland.com/investors, or by directing a request to Ashland
at 50 E. RiverCenter Blvd., Covington, KY 41012. The respective directors
and executive officers of Ashland and other persons may be deemed to be
participants in the solicitation of proxies in respect of the proposed
transaction. Information regarding Ashland's directors and executive
officers is available in its proxy statement filed with the SEC by Ashland
on December 8, 2003. Investors may obtain information regarding the
interests of participants in the solicitation of proxies in connection with
the transaction referenced in the foregoing information by reading the
proxy statement/prospectus when it becomes available.