ASH Ashland Inc

By David Benoit 

A big shareholder is calling on Ashland Inc. to halt plans to spin off its Valvoline business and instead seek a buyer for its specialty-chemicals unit at a time when deal-making in the sector is robust.

Elmrox Investment Group LLC, one of Ashland's 10 largest shareholders with a stake worth roughly $100 million, believes the unit could command a sale price north of $9 billion, pointing to the planned merger of chemical giants Dow Chemical Co. and DuPont Co. and other recent deals. Valvoline could be worth more than $7 billion on its own, the investment firm said in a presentation it plans to release publicly this week.

Ashland currently has a market capitalization of $6.1 billion.

In an emailed statement, Ashland said it welcomes input from shareholders but stands by its current plan.

"We are confident that our planned separation of Ashland into two great independent, public companies is our best path forward to enhance shareholder value," the company said.

Ashland last year said it would separate Valvoline, which makes motor oil and automotive chemicals and runs retail repair shops, from Ashland's businesses that make chemicals and compounds that go into everything from sunscreen and pharmaceuticals to the fluids used in shale drilling. The company said both units would be better focused on their distinct strategies once separated.

The Covington, Ky.-based company's shares have fallen nearly 10% since announcing the split in late September, though shareholders had long called for a breakup to highlight the Valvoline business.

In its presentation, which was reviewed by The Wall Street Journal, Elmrox argued that the company should instead take advantage of a lively market for chemical deals. There were a record $176 billion in global chemical deals last year, including the $60 billion-plus merger of Dow and DuPont, according to Dealogic.

Elmrox said Ashland's board could benefit from the addition of a new shareholder voice, given that its current directors collectively own a relatively small stake in the company. The firm said the stock has underperformed because the combination of a consumer-heavy Valvoline business and the specialty-chemicals division hides its true costs and cash-flow.

Valvoline had about $2 billion in sales and $411 million in adjusted earnings before interest, taxes, depreciation and amortization in its 2015 fiscal year, which ended in September. Ashland's remaining businesses had sales of $3.4 billion and $673 million in adjusted Ebitda.

Ashland's history with Elmrox goes back a few years. The investment firm's founder, Daniel W. Lawrence, first disclosed a stake in the company in 2011, and he discussed the company at an investment conference in July 2013.

In a statement, Mr. Lawrence said the firm thinks highly of Ashland Chief Executive William Wulfsohn.

"We are confident the Board is fulfilling its obligation to shareholders and exploring the many ways in which to maximize shareholder value especially given recent market developments," Mr. Lawrence said.

Elmrox isn't Ashland's first brush with an outspoken shareholder. Activist investor Jana Partners LLC built a 7.4% stake in the company in early 2013 and sought talks about the company's structure and capital returns. The following year, Ashland sold its water-treatment business to a private-equity firm for $1.4 billion and its elastomers business to a rubber producer. Jana sold its stake in early 2015.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

January 19, 2016 22:14 ET (03:14 GMT)

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