Filed
by Ashland Inc.
Pursuant to Rule 425
Under the Securities Act of 1933
Subject Company
Hercules Incorporated
Commission File Number 1-00496
News
Release
 |
 |
FOR
IMMEDIATE RELEASE
July 11,
2008
ASHLAND
TO ACQUIRE HERCULES
$3.3
Billion Transaction Creates Major, Global Specialty Chemicals
Company
COVINGTON,
Ky. and WILMINGTON, Del. – Ashland Inc. (NYSE: ASH) and Hercules Inc. (NYSE:
HPC) today announced that they have entered into a definitive merger agreement
under which Ashland would acquire all of the outstanding shares of Hercules for
$18.60 per share in cash and 0.093 of a share of Ashland common stock for each
share of Hercules common stock. The total transaction value is approximately
$3.3 billion, or $23.01 per Hercules share based on Ashland’s July 10 closing
stock price and including $0.7 billion of net assumed debt. The transaction,
which would create a major, global specialty chemicals company, is expected to
close by the end of calendar 2008.
With
sales in more than 100 countries, Ashland is a manufacturer of specialty
chemicals, a leading distributor of chemicals and plastics, and a provider of
automotive lubricants, car-care products and quick-lube services. Hercules is a
leader in specialty additives and ingredients that modify the physical
properties of water-based systems and is one of the world’s leading suppliers of
specialty chemicals to the pulp and paper industry.
Upon
the transaction’s close, Ashland will have pro forma combined revenue for the 12
months ended March 31, 2008, of more than $10 billion, including approximately
$3.5 billion generated outside North America. For the same period,
Ashland generated earnings before interest, taxes, depreciation and amortization
(EBITDA) of $365 million excluding certain items, while Hercules reported
ongoing EBITDA of $392 million excluding certain items. Specialty chemicals,
which on a pro forma basis represents approximately 75 percent of total EBITDA,
will serve as Ashland’s primary platform for future growth.
Ashland
Chairman and Chief Executive Officer James J. O’Brien said, “The acquisition of
Hercules fulfills our objective to become a leading specialty chemicals company.
It creates a defined core for Ashland composed of three specialty chemical
businesses with strong market positions and promising global growth potential:
specialty additives and ingredients, paper and water technologies, and specialty
resins. In addition, we expect our financial profile to be enhanced
significantly through reduced earnings volatility, improved profitability and
stronger cash flow generation.”
Hercules
President and Chief Executive Officer Craig A. Rogerson said, “We are
enthusiastic about the opportunity to combine Hercules with Ashland. Our
companies share proud and similar histories of nearly 100 years of innovation,
dedication and service. Hercules shareholders will receive a significant premium
over the current trading price for their shares and, through their ownership of
Ashland shares, the opportunity to participate in the upside potential of the
combined company. We look forward to working with Ashland to bring these two
great companies together.”
In
specialty additives and ingredients, Hercules’ Aqualon business is one of the
most recognized and admired specialty chemical brands in the world and brings
Ashland a significant market position in rheology modifiers, which alter the
physical properties of water-based systems. These additives are used across a
wide range of industries to make everything from adhesives and paints to foods,
pharmaceuticals and personal care products. Nearly all of Aqualon’s additive
products are water soluble polymers derived from renewable materials. The
combined company generates, on a pro forma basis, approximately one-third of
EBITDA from bio-based or renewable chemistries.
“We
will combine the paper and water businesses of each company to create one global
paper and water technologies business with annual revenue of $2 billion,” said
O’Brien. “In particular, Hercules’ leadership position in pulp and paper
technologies bolsters our participation in one of the world’s largest water
treatment markets. The combined businesses will provide the scale to leverage
opportunities in other key water treatment markets including municipal,
industrial and marine.
“The
third business within our new core – specialty resins – is one where Ashland has
long enjoyed a strong reputation for innovation and service. A broader
international footprint will offer the specialty resins business expanded global
growth opportunities in key building and construction markets, including
infrastructure and wind energy. In addition,
our Distribution
and Valvoline businesses provide complementary capabilities and share similar
markets with the specialty chemical businesses,” said
O’Brien.
Ashland
expects to realize annualized run-rate cost savings of at least $50 million by
the third year following the transaction’s close by eliminating redundancies and
capturing operational efficiencies. In the first year following the
transaction’s close, while the combination is modestly dilutive to earnings per
share on a reported basis, it is expected to be significantly accretive to
Ashland’s earnings per share excluding merger costs and noncash depreciation and
amortization charges resulting from the transaction.
O’Brien
continued, “We are extremely impressed with the quality of the Hercules people
and we look forward to welcoming them into the Ashland family.
Our companies share a common desire to live up to our own high
expectations, and those of our customers, shareholders and the communities in
which we operate. We are also very pleased that John Panichella, president of
Hercules’ Aqualon Group, and Paul Raymond, president of Hercules’ Paper
Technologies and Ventures Group, have agreed to join Ashland after the close of
the transaction, reporting directly to me. In addition, we expect to maintain a
significant presence in Wilmington, Del., where Hercules is
headquartered.
“An
integration team with members from both organizations will determine how best to
utilize the strengths and scale of the combined company worldwide. We will work
with the Hercules team to ensure a smooth transition,” concluded
O’Brien.
Transaction
Details
The
merger is conditioned upon, among other things, the approval of Hercules’
shareholders, the receipt of regulatory approvals and other customary closing
conditions. Assuming the satisfaction of these conditions, the transaction is
expected to close by the end of calendar 2008.
The
cash portion of the consideration will be funded through a combination of cash
on hand and committed debt financing from Bank of America and Scotia Capital,
subject to customary terms and conditions. Ashland plans to use the cash flows
of the combined organization to pay down debt with a goal of attaining
investment-grade credit ratings within two to four years after closing the
transaction.
Under
the terms of the definitive merger agreement, Hercules would be required to pay
Ashland a fee of $77.5 million under certain circumstances including if Hercules
terminates the merger agreement to accept a superior offer, and Ashland would be
required to pay Hercules a fee in the same amount if the transaction is not
completed due to a failure to obtain financing at the time the conditions to the
merger have been satisfied.
Citigroup
Global Markets Inc. acted as financial advisor, and Squire, Sanders &
Dempsey LLP acted as legal counsel, to Ashland. Credit Suisse Securities (USA)
LLC acted as financial advisor, and Wachtell, Lipton, Rosen & Katz acted as
legal counsel, to Hercules.
Conference
Call and Webcast
Ashland
and Hercules will host a conference call with securities analysts today at 9:30
a.m., EDT, to discuss the transaction. Investors, the news media, and others may
listen to a live webcast of the call at www.ashland.com or www.herc.com by
clicking on an available audio link. Real Network’s Real Player or Microsoft
Media Player is required to access the webcast. They can be downloaded from
www.real.com or www.microsoft.com.
Ashland
Inc. (NYSE: ASH), a diversified, global chemical company, provides quality
products, services and solutions to customers in more than 100 countries. A
FORTUNE 500 company, it operates through four divisions: Ashland Performance
Materials, Ashland Distribution, Valvoline and Ashland Water Technologies. To
learn more about Ashland, visit www.ashland.com.
Hercules
manufactures and markets chemical specialties globally for making a variety of
products for home, office and industrial markets. For more information, visit
the company’s website at www.herc.com.
-
0 -
FORTUNE
500 is a registered trademark of Time Inc.
Regulation
G
The
information presented in this earnings release regarding adjusted earnings per
share and earnings before interest, taxes, depreciation, and amortization
(EBITDA) does not conform to generally accepted accounting principles (GAAP) and
should not be construed as an alternative to the reported results determined in
accordance with GAAP. Management has included this non-GAAP information to
assist in understanding the operating performance of the Company and its
operating segments. The non-GAAP information provided may not be consistent with
the methodologies used by other companies. All non-GAAP information is
reconciled with reported GAAP results in financials provided below.
(Text of
graph in press release)
Regulation
G:
Reconciliation
of Operating Income to EBITDA
Ashland
Inc. Trailing 12 Months Ended March 31, 2008
(in
millions)
Operating
income $215
Non-North
American entities reporting lag $(5)
Due
diligence related to potential growth opportunities
$8
Depreciation
and amortization $147
EBITDA
$365
(Text of
graph in press release)
Regulation
G:
Reconciliation
of Income Before Income Taxes, Minority Interest and Equity (Loss) Income to
EBITDA
Hercules
Inc. Trailing 12 Months Ended March 31, 2008
(in
millions)
Income
before income taxes, minority interest and equity (loss) income -
revised* $188
Vertac
matters $19
ABL
$13
Severance
and restructuring costs $23
Gain on
asset dispositions $(7)
Pension
accounting charge pre LDI implementation
$(31)
Other
$ 9
Interest
and debt expense $68
Depreciation
and amortization, net of debt issuance
$110
EBITDA
$392
*Effective
Jan. 1, 2008, Hercules elected to change its method of accounting for its
qualified defined-benefit pension plans in the United States and the United
Kingdom. This change in accounting method increased income in this caption by
$42 million during this 12-month period.
Forward-Looking
Statements
This
document 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 and Hercules’
current expectations about the acquisition of Hercules. Although Ashland and
Hercules believe their expectations are based on what management believes to be
reasonable assumptions, they cannot assure the expectations reflected in this
document will be achieved as they are subject to risks and uncertainties that
are difficult to predict and may be outside of Ashland’s and Hercules’ control.
These risks and uncertainties may cause actual results to differ materially from
those stated, projected or implied. Such risks and uncertainties include the
possibility that the benefits anticipated from the Hercules transaction will not
be fully realized; the possibility the transaction may not close, including as a
result of failure to obtain the approval of Hercules stockholders; the
possibility that financing may not be available on the terms committed; and
other risks that are described in filings made by Ashland and Hercules with the
Securities and Exchange Commission (SEC) in connection with the proposed
transaction. Other factors, uncertainties and risks affecting Ashland and
Hercules are contained in each company’s periodic filings made with the
Securities and Exchange Commission, including Ashland’s Form 10-K for the fiscal
year ended Sept. 30, 2007, Ashland’s Form 10-Q for the quarter ended March 31,
2008, Hercules’ Form 10-K for the fiscal year ended Dec. 31, 2007, and Hercules’
Form 10-Q for the quarter ended March 31, 2008 filed with the SEC and available
on Ashland’s Investor Relations website at www.ashland.com/investors or
Hercules’ website at www.herc.com or the SEC’s website at www.sec.gov. Ashland
and Hercules undertake no obligation to subsequently update or revise the
forward-looking statements made in this document to reflect events or
circumstances after the date of this document.
ADDITIONAL
INFORMATION
In
connection with the proposed transaction, Ashland and Hercules will be filing
documents with the SEC, including the filing by Ashland of a registration
statement on Form S-4, and the filing by Hercules of a related preliminary and
definitive proxy statement/prospectus. Investors and security holders
are urged to read the registration statement on Form S-4 and the related
preliminary and definitive proxy/prospectus when they become available because
they will contain important information about the proposed
transaction. Investors and security holders may obtain free copies of
these documents (when they are available) and other documents filed with the SEC
at the SEC’s web site at www.sec.gov and by contacting Ashland Investor
Relations at (859) 815-4454 or Hercules Investor Relations at (302)
594-7151. Investors and security holders may obtain free copies of
the documents filed with the SEC on Ashland’s Investor Relations website at
www.ashland.com/investors or Hercules’ website at www.herc.com or the SEC’s
website at www.sec.gov.
Hercules
and its directors and executive officers may be deemed participants in the
solicitation of proxies from the stockholders of Hercules in connection with the
proposed transaction. Information regarding the special interests of
these directors and executive officers in the proposed transaction will be
included in the proxy statement/prospectus described
above. Additional information regarding the directors and executive
officers of Hercules is also included in Hercules’s proxy statement for its 2008
Annual Meeting of Stockholders, which was filed with the SEC on March 19,
2008. These documents are available free of charge at the SEC’s web
site at www.sec.gov and from Investor Relations at Ashland and Hercules as
described above.
| Contact Information: | |
| Ashland Inc. | Hercules Inc. |
| Investors: | Investors: |
|
Eric
Boni
|
Stu
Fornoff
|
| (859) 815-4454 | (302) 594-7151 |
| enboni@ashland.com | sfornoff@herc.com |
| Media: | Media: |
| Jim Vitak | John Riley |
| (614) 790-3715 | (302) 594-6025 |
| jevitak@ashland.com | jriley@herc.com |
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