Exhibit 99.1
FINAL TRANSCRIPT
CORPORATE PARTICIPANTS
DARAGH PORTER
Ashland, Inc. - VP, Finance, Treasurer
MARVIN QUIN
Ashland, Inc. - CFO, SVP
JIM O'BRIEN
Ashland, Inc. - CEO
CONFERENCE CALL PARTICIPANTS
MIKE JUDD
Greenwich Consultants - Analyst
MICHAEL SISON
Keybanc Capital - Analyst
STEVEN SCHUMAN
Prudential - Analyst
JOHN ROBERTS
Buckingham Research - Analyst
LAURENCE ALEXANDER
Jefferies & Co - Analyst
JOHN MCNULTY
CSFB - Analyst
GABE MARSHANK
CR Intrinsic Investors - Analyst
DENNIS DELAFIELD
Delafield Asset Mgmt - Analyst
PRESENTATION
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OPERATOR
Good day ladies and gentlemen, welcome to the Ashland Paving conference
call. At this time all participants are in a listen-only mode. We will be
facilitating a question-and-answer session towards the end of this
conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being
recorded for replay purposes. I would now like to turn the presentation
over to your host for today, Daragh Porter, Vice President of Treasury and
Finance. Please proceed.
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DARAGH PORTER - Ashland, Inc. - VP, Finance, Treasurer
Good morning, everyone. As you are aware we issued a news release at
approximately 8:00 this morning eastern standard time concerning Ashland's
divestiture of our Ashland Paving and Construction subsidiary. We're
pleased you could join us on this call. I do want to note that there are no
slides associated with the call. Let me take a moment to introduce the
people that are in the room today; Jim O'Brien, Chairman and Chief
Executive Officer; Marvin Quin, Ashland Senior Vice President and Chief
Financial Officer; Lamar Chambers, Vice President and Controller; and Dean
Doza, our Director of Investor Relations.
Before we get started let me note that our remarks today will include
forward-looking statements as that term is defined in relevant securities
law. Such statements will be based on a number of assumptions that are
described more fully in this morning's press release and our filings with
the SEC including whether the transaction closes in our recommendation to
the board about use of proceeds. There can be no assurance that the Board
of Directors will accept management's recommendation. With that let me turn
the call over to Marvin Quin.
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Good morning. Today we announced the signing of a definitive agreement to
sell the stock of Ashland Paving and Construction, a wholly-owned
subsidiary to Oldcastle Materials Inc. which is a subsidiary of CRH, the
Irish company. Closing is dependent upon satisfaction of standard and
customary closing conditions such as reps and warranties. We expect to
close before month end. The cash transaction is valued at $1.3 billion
which should result in an after-tax gain of $100 million plus or minus 20%.
Ashland management intends to recommend to its Board of Directors that
substantially all the net after-tax proceeds be used to fund the existing
share repurchase authorization, an additional share repurchase
authorization and a special cash dividend.
The aggregate share repurchases under the existing authorization and if
approved the additional share repurchase authorization would be limited to
approximately 10 million shares for reasons I'll describe later. For those
of you familiar with some of our past transactions you will recall that we
are quite sensitive to maximizing after-tax value. Because of the manner in
which the transaction was structured, income taxes should be quite modest.
We expect after-tax proceeds of $1.25 billion. The structure requires the
buyer to step into our existing low tax basis and APAC assets rather than
obtaining a step up in basis equal to the purchase price. To generate the
same after-tax proceeds from a net asset sale the gross sales price would
have had to approach $1.6 billion. We believe this value, this after-tax
value compares favorably not only with comparable transactions but also
with public company valuations and our discount cash flow analysis.
You may be asking with APAC performing well and the safety highway bill
providing funding growth, why sell APAC now? While Ashland has been in the
highway construction and materials business for 40 years and APAC is
performing well, it really does not fit our strategy to develop Ashland
into a diversified chemical company. We are pleased with the turnaround
APAC is enjoying but looking forward we see some headwinds, namely
materials inflation and the impact this could have on its market.
For example, the price per ton of the hot mix asphalt has increased 36%
year-to-date -- excuse me -- July versus the prior July, the safety bill
reflects an aggregate growth of approximately 4% of funding over the next
five-year period. Unless government budgets for road construction increase
materially we expect a decline in demand. And larger organizations such as
the combined Oldcastle APAC may be better equipped to deal with such
challenges. Given our declared strategy versus the risk of running out the
next cycle, management and the board feel it is in shareholder's best
interest to exit the business and receive the attractive value.
As you may recall, our agreement with Internal Revenue Service provided
favorable tax treatment of the MAP transaction which we consummated on June
30, 2005. At that time we represented to the IRS that Ashland had no
intention of purchasing more than 20% of its shares. This 20% amounted to
15 million shares at the time. We have subsequently purchased more than 4
million shares thus given the representation of intent we made to the IRS
13 months ago, we are unlikely to purchase more than roughly 10 million
additional shares. Any shares would be purchased on the open market as
opposed to a tender.
The special dividend would be treated as a taxable dividend and no part
would be considered a return to capital. We also expect such special
dividend to be considered a qualified dividend that is subject to the
maximum federal income tax rate of 15% for many individual shareholders.
The tax treatment of the special dividend obviously depends on a
shareholder's unique situation, so shareholders should of course consult
their tax advisors.
Now let me take a few moments and comment on our year-end financials. As
you may be aware, or should be aware that the 11 months year-to-date and
two months for the fourth quarter results from APAC will be treated as
discontinued operations on our income statements and prior periods will be
restated to reflect this as well. The balance sheet and statement of cash
flows will likewise reflect APAC as discontinued operations. In addition be
mindful our future results will include some costs previously allocated to
APAC while approximately one-third of the corporate costs associated with
APAC will transfer to Oldcastle, we will temporarily b left with $20 to $25
million of stranded cost on an annualized basis which will be included in
our selling and general administrative expenses in the income statement.
We've already begun to address these costs and expect to substantially
reduce or better yet eliminate these costs over the course of the year. Now
I would like to ask Jim O'Brien to share with you his outlook for Ashland
and its future.
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JIM O'BRIEN - Ashland, Inc. - CEO
Thank you, Marvin. Today Ashland sharpens its focus on its future as a
diversified chemical company. In arriving at our decision to sell APAC
management and the board took a look at all the alternatives available to
Ashland and considered what would deliver the best value for our
shareholders. The sale of APAC was not about its performance, but about
Ashland's strategic direction and completes a major step in our multiyear
transformation into a global chemical company. This clear focus will enable
investors to more accurately value Ashland's shares in line with its
chemical company peers.
When the transaction is completed later this month, Ashland will consist of
its four chemical businesses. Ashland Performance Materials, Ashland
Distribution, Valvoline and Ashland Water Technologies. This is our future,
and it's a very bright one. As we've stated before, we don't plan to make
acquisitions just for the sake of growth or spending our cash. Our goal is
to make acquisitions that will strengthen our core businesses, leverage our
capabilities and achieve our financial objectives over time.
Given our current cash, current EBITDA and the EBITDA produced by
acquisitions, we believe Ashland could undertake transactions exceeding $2
billion without increasing debt beyond two times EBITDA. Even after
returning $1.3 billion to the shareholders through stock repurchases and a
special dividend. Thus we believe that we continue to have ample financial
capacity to transform the company. We will continue to exercise patience as
we examine our opportunities and identify those potential acquisitions that
enhance shareholder value.
Before I open the line for your questions I want to share with you my
enthusiasm for Ashland's future. I'm sure it seems odd that in order to
grow larger we have made ourselves smaller yet again, first MAP, now APAC.
Yet this brings us to our vision of being a diversified, global chemical
company with better growth characteristics and less volatile earnings. We
continue to focus on growing as a diversified chemical company organically
as well as through acquisitions. And our commitment to creating shareholder
value has not changed. We will make the necessary changes in our
organizational structure to reflect our size without APAC and be prepared
to support growth. We've come a long way since this transformation began
late 2002. I now open the line up for questions.
QUESTIONS AND ANSWERS
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OPERATOR
(OPERATOR INSTRUCTIONS) Mike Judd, Greenwich Consultants.
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MIKE JUDD - Greenwich Consultants - Analyst
Good morning, and congratulations on getting the deal done. When do you
expect the dividend to go out to shareholders?
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JIM O'BRIEN - Ashland, Inc. - CEO
Marvin.
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Obviously we haven't set the dividend date or anything of that nature, and
obviously the board hasn't declared it, that is assuming they accept
management's recommendation, we're thinking it is sometime in the fall. We
have at this point in time a dividend scheduled for September 15, which is
our normal dividend, and will be sometime after that.
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MIKE JUDD - Greenwich Consultants - Analyst
Okay, great, and just on the also on M&A, could you comment about how
things are going in terms of looking for acquisitions, what is the
environment like out there right now? Are there plenty of opportunities or
is a relative dearth of opportunities at a reasonable price?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
As you take a look at our objectives we've stated that the areas that we
are most interested is in adhesive space, the composites and water. And we
continue to make the necessary contacts and establish the necessary
relationships so that when opportunities do come forward that we are
considered one of the top people they want to talk with and perhaps do a
transaction. So as we look at the opportunities, we've always said that we
will not probably be the highest bidder in an auction. That has not been
our strategy and continues to be so. We want to talk to people and try to
find the opportunities that best fit our capabilities and where a company's
and their division or an organization that wants to move in a different
direction and we are considered one of the top choices. So we continue to
do that, and to continue to work in that arena and not to say that anything
is imminent or that the broader landscape has improved. Things are still
somewhat limited, and the pricing is still somewhat high.
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OPERATOR
Michael Sison, KeyBanc.
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MICHAEL SISON - Keybanc Capital - Analyst
I would just be curious, I recognize that the outlook for APAC under its
new company is probably likely different being separate being under you,
but what did you think the earnings or sales growth or sort of -- what was
underlying your assumption in '07, '08 in terms of the recovery of earnings
that under the premise of your sale?
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JIM O'BRIEN - Ashland, Inc. - CEO
As we looked at the timing of why try to do a transaction with APAC now
versus sometime in the future, we took into consideration its past
performance and also where we thought it stood today and then the
challenges that we were facing in the future. As Marvin kind of outlined,
the headwinds of the business faces are still there. There are a lot of
issues that the business will have to face going into the next construction
season. I think this year we were fortunate that we had very good weather.
The business was limited as far as its impact by weather this year versus
past years, which I think helped its performance. Also we were able to sell
some of the smaller divisions, which accrued about $20 million in profit
that was reported this past year, so that was in the reported earnings. So
as we looked at it, the most important point was is the strategy; our
strategic intent has been that we wanted to get a company that was more
focused, more honed to a certain industry and series of markets. And we
have chosen the diversified chemical space for that participation, and we
felt it was time to get the company focused there, and we believe that
given all aspects of the APAC opportunity we maximized its value and its
current position. And that we are very hopeful that as it combines with CRH
it has a bright future. Because we have some great employees there, worked
very hard and done a tremendous job I believe getting this company
positioned.
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MICHAEL SISON - Keybanc Capital - Analyst
I think when you look at the improvement here in '06 versus '05 it has been
exceptional for APAC. They have done a nice job internally. I guess at this
point in order to get continued improvement in earnings you would need
demand, would that be a fair statement?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
I guess what we are seeing is demand contraction. In July our weather was
very good, yet production of hot mix asphalt declined 15% versus the prior
year. Why? What has happened is the price of hot mix asphalt has gone up
quite a bit. Our cost and our pricing has gone up 36% versus this time last
year, and we are selling to people who have fixed dollar budgets. This
might be counties and municipalities, states and even with all the
excitement over the safety bill, that is only providing 4% growth in
revenue and versus 36% increase in pricing. Obviously there is going to be
a contraction of demand, and that is what we are experiencing and long-term
I think this business is a strong business, APAC is a strong competitor.
And our view is the next couple years are not going to be as attractive as
'06.
I think as we think about a business that is very weather dependent I would
suggest that looking at any one year is, can lead to wrong conclusions.
Because much of the performance of the business is driven by how did the
business perform, how is the weather in that year, and I think '05 is a
perfect example. Operating income was $30 million. Clearly we've made some
improvements in the business; for nine months we've had $95 million but the
improvements are not 65 million; actually on an annualized basis be a lot
larger increase. A lot of it is weather, so we tend to look over a
multiyear period when we're trying to establish what kind of base earnings
level the base cash flow of the business is.
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MICHAEL SISON - Keybanc Capital - Analyst
Great, thanks and one last question Jim, when you take a look at the
remaining parts of your business, in total excluding the cash and the
interest income, what do you see the growth potential for distribution,
chemicals and Valvoline over a business period in terms of top line in sort
of give us what the operating income growth could be?
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JIM O'BRIEN - Ashland, Inc. - CEO
As we sit and look at it, organic growth and of course accompanied by
acquisitions is the basis of our strategy going forward. As we get into our
October analysts call in New York I will spend a lot more time describing
the strategy and giving you the metrics that you're looking for. And also
the cost takeout that has to take place in these businesses and throughout
the corporation because of the transference of APAC out of the Corporation.
So I will give you a lot more transparency on that in October and we will
spend more time in that area. That we can have some more Q&A and have some
facts in front of you for that discussion.
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OPERATOR
Steven Schuman, Prudential.
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STEVEN SCHUMAN - Prudential - Analyst
Looking at your regular dividend its still pretty low compared to some of
your peers out there. Is there any interest in increasing that?
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JIM O'BRIEN - Ashland, Inc. - CEO
As you look at our dividend at $1.10 a share, what we would try to do is
look at how that compares with our ongoing net income. And as you look at
it on that basis I think you will see that the payout is reasonable. We
don't want to be paying out 60% of earnings, but we think it is a
reasonable dividend and quite frankly we have no plans to change it.
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STEVEN SCHUMAN - Prudential - Analyst
Okay, looking at your comments about the $10 million share buyback, is that
a cap because this tax efficiency? Can you increase that (multiple
speakers) later on in '08 or '09?
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JIM O'BRIEN - Ashland, Inc. - CEO
It is 10 million shares.
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STEVEN SCHUMAN - Prudential - Analyst
Right, I am sorry -- 10 million shares -- excuse me.
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JIM O'BRIEN - Ashland, Inc. - CEO
Yes, if you go back to last June, June of '05 we made a representation to
the IRS that we had no plans to purchase more than at that time 15 -- well
20% our stock which was 15 million shares. We've purchased a little over 4
million shares so we can purchase about 10, 10.5 million shares without
running afoul of the representation we gave the IRS.
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STEVEN SCHUMAN - Prudential - Analyst
And then new monies from this deal would also fall under that similar?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Yes. The representation to the IRS it really mattered not where the source
of the funds were.
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STEVEN SCHUMAN - Prudential - Analyst
I see, and then the special dividend, do you have any estimate on the size
of that?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
To some extent you can get a pretty good estimate on it just looking at the
math. If we are purchasing (multiple speakers) million shares some of those
would be before the dividend and some would be after the special dividend,
and you can almost back into if we end up with proceeds of $1.250 billion
or after adjustment $1.3 billion it kind of implies what the dividend would
be and it would be quite substantial.
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STEVEN SCHUMAN - Prudential - Analyst
And then really quickly on the [stranded] cost, $20 to $25 million do you
think you can get that out of the system within a year, 18 months?
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JIM O'BRIEN - Ashland, Inc. - CEO
What we are working on right now is a process by which we get that out
within this next fiscal year.
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STEVEN SCHUMAN - Prudential - Analyst
Great. Thank you.
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OPERATOR
John Roberts, Buckingham.
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JOHN ROBERTS - Buckingham Research - Analyst
Is there any reason you would not do the max 10 million shares other than
market conditions and ability to be able to buy it back?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
No, we would -- our intent would be to buy those shares back over time in
the open market.
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JOHN ROBERTS - Buckingham Research - Analyst
So the dividend would just be the difference? If we make our own assumption
about the average price and the repurchase the dividend would be the
difference in the proceeds?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Correct.
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JOHN ROBERTS - Buckingham Research - Analyst
Should we expect the pace of repurchase to be similar to what you've had
over the past several months?
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JIM O'BRIEN - Ashland, Inc. - CEO
Probably not. As you know we haven't been purchasing any stock for quite a
while because of the -- we had not had full disclosure on this transaction.
I think the pace will be driven by two factors, one the price of our stock
and two, the size of the number of shares we can repurchase; clearly the
number of shares we're going to be repurchasing is substantially larger
than we have in the past.
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JOHN ROBERTS - Buckingham Research - Analyst
So when you say driven by the price of your stock could it drag on for more
than a year if your stock would have run-up, for example?
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JIM O'BRIEN - Ashland, Inc. - CEO
I don't want to speculate on timeframe. We would hope this would be
achieved prior to that, but we're going to have to be responsive to our
opportunities.
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JOHN ROBERTS - Buckingham Research - Analyst
And when do you expect to be free of the IRS restrictions on share buyback
with special dividends?
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JIM O'BRIEN - Ashland, Inc. - CEO
That was a representation made to the IRS at that time we did the
transaction in June of '05 and it doesn't have a termination date.
Ultimately what will happen is we will close out the tax year with the IRS
and it will no longer be relevant. It does not have any formal sunset.
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JOHN ROBERTS - Buckingham Research - Analyst
You have a schedule with your auditors today in terms of when you expect to
make that final tax filing?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Our auditor is really not involved in the tax filings. Of course we have
made the tax filing for the period ending June 30th, and it will probably
be a year, a year and a half, maybe even two years before that is
completed.
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JOHN ROBERTS - Buckingham Research - Analyst
Thank you.
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JIM O'BRIEN - Ashland, Inc. - CEO
Post after a year.
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OPERATOR
Jeff Zekauskas, JPMorgan.
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UNIDENTIFIED SPEAKER
This is (indiscernible) in for Jeff. I have a couple of questions. The
first is can you explain the tax basis in these assets that you sold and
explain the difference between the 1.3 billion, the $1.6 billion?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Certainly. If we had sold the business as net assets that we would have had
a large tax liability. Our tax basis in stock of APAC is about $1.2
billion, at least the basis in the net assets is considerably less. And the
way to think about it is over $400 million in goodwill that is basis in the
stock but not in the net assets. There is also we have a lot of equipment
and of course equipment is depreciated much more rapidly for tax purposes
and book purposes. So for us to have had a sale of net assets equal to the
value we received in this transaction we would have had to have a price of
about $1.6 billion.
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UNIDENTIFIED SPEAKER
There is some commentary in the press release that the final price may be
adjusted for working capital and other items. Is that meaningful in terms
of magnitude and do you expect this to be adjusted upward or downward?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Great question. I meant to cover that. We expect it to be an upward
adjustment. We think the number is going to be in the $30 to $40 million
range but we will have to get to closing and complete that accounting
period and will do an audit before we finalize that. But at this time we
are estimated $30 to $40 million positive (inaudible).
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UNIDENTIFIED SPEAKER
If you would have sold net assets and would have charged $1.6 billion,
would your asset tax proceeds still have been the same?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
Yes.
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UNIDENTIFIED SPEAKER
And lastly, now that APAC is gone how do you think of the remaining
businesses? Are there any other business in your patrol that you view as
more cyclical or do you really believe you are left with a more specialty
portfolio now?
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JIM O'BRIEN - Ashland, Inc. - CEO
As we look at the businesses the strategy is to continue to rebalance the
portfolio, to get a diversified chemical base that is, that has more
predictable, more consistent earnings. So as we continue to build the
company that is the direction that we're going to take. As we improve
reinvestment of the proceeds those are one of the primary criteria that
we're using as far as reinvestment. So as I look at the portfolio today it
is much stronger than it was two years ago, but we still have some work to
do.
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OPERATOR
Laurence Alexander, Jefferies.
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LAURENCE ALEXANDER - Jefferies & Co - Analyst
I guess the first question just to close out a couple of details on the
share buyback, what is your thinking in terms of possibilities of doing a
tender offer perhaps say next year? Is there latitude within your IRS
agreement to do a tender offer next year?
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UNIDENTIFIED COMPANY REPRESENTATIVE
No, no, it is not. Basically the representation that we gave which is a
standard representation in these tax efficient transactions is that all
purchases would be done on an open market basis. Therefore we cannot do a
tender or Dutch auction or anything of that nature.
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LAURENCE ALEXANDER - Jefferies & Co - Analyst
And apart from the representation to the IRS with the new transaction there
is no further constraints on your uses of cash?
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UNIDENTIFIED COMPANY REPRESENTATIVE
That is correct; the representations to Marathon are not relevant in this
particular situation, and the representations to the IRS have been fully
discussed in this call.
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LAURENCE ALEXANDER - Jefferies & Co - Analyst
Now is there, as you look at your ongoing businesses, is there room for you
to significantly increase your R&D budget?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
There is certainly an option if we choose to but I see that more as an
operational issue based upon the earnings capability and the opportunities
that we have before us. So in my mind that is not influenced per se by the
fact that we have additional cash as capital for reinvestment that would be
something we would decide based upon the opportunities that we see inside
the marketplace.
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LAURENCE ALEXANDER - Jefferies & Co - Analyst
To be clear operationally, are you comfortable with your level of R&D
spending?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
At this point I am.
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LAURENCE ALEXANDER - Jefferies & Co - Analyst
Also is there an opportunity over the next twelve months or so to
accelerate the pace of the SAP rollout?
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UNIDENTIFIED COMPANY REPRESENTATIVE
The SAP rollout is pretty much something that is in the training phase
right now of our associates and employees. So that is on track and this
year as we get into the execution of that, there's going to be heavily
execution between October and February specifically this year. As far as
going between here and Europe and then completing everything as far as the
Americas and Europe by next September. So we should pretty much be through
that and into the rest of the world by the end of next September.
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LAURENCE ALEXANDER - Jefferies & Co - Analyst
And finally on the M&A front in the past you've indicated that smaller
transactions were more likely in the near-term, partially as a preference
to test your acquisition processes. To the extent that larger plastics
assets might become available would you be willing to reverse the order and
go after larger assets first?
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UNIDENTIFIED COMPANY REPRESENTATIVE
We've completed a transaction on the Degussa where it is a fairly complex
integration in that it has integration in Eastern Europe, China, U.S. So I
think our team, the integration team we have on this is getting an
excellent opportunity to understand what are the key components and the
issues associated with an integration. And that has gone very, very well. I
think our preplanning on that particular transaction, the execution of it,
is going to deliver the economics and exceed the economics actually than
what we've justified the acquisition. So I'm very pleased with that.
So as we look at future acquisitions I would say that ideally we would want
to do larger ones than smaller ones because they take the same amount of
energy and activity. But at the same time it all comes down to the value
creation idea at the end of the day versus just the size. So we would
consider I think businesses between 150 to 500 and also look at some larger
ones but the risk associated with that also has to be considered. So all
these components have to be evaluated, but given our future I would say
that ultimately we'd want to do a larger transaction than just do a series
of 50 to $100 million deals. Because it just consumes the organization over
time; so we have to be sensitive to that and find the right opportunities
for us that truly add value but that is going to be the key determined.
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OPERATOR
John McNulty, Credit Suisse.
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JOHN MCNULTY - CSFB - Analyst
Just two quick questions. On your original share repurchase plan of which I
think there's about -- if I remember right -- about $209 million left on
the repurchase plan, it was slated to be completed by year end. And then I
guess it was delayed a bit just because of the divestiture plans here. Can
we still expect that share repurchase plan to be completed by year end and
possibly even see a little bit more than that?
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UNIDENTIFIED COMPANY REPRESENTATIVE
What we're doing, John, to go back the use of proceeds has been recommended
to the board. So we are basically rolling that into this new program. And
what we are saying is we expect to receive approaching $1.3 billion in
after-tax proceeds, and all of that will go into stock repurchases and a
special dividend. And the ultimate amount of dividends that we can buy
without taking a risk of running afoul of the IRS is a little over 10
million shares. So we will have authorized as much as can be authorized
without taking a tax risk which we don't want to do.
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JOHN MCNULTY - CSFB - Analyst
But the timing in your original plan is basically off at this point it
sounds like.
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UNIDENTIFIED COMPANY REPRESENTATIVE
Yes. The timing of the original plan, the original $200 or $300 million
that is but we're now in a much larger buyback which will probably
necessitate a faster rate of buyback.
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JOHN MCNULTY - CSFB - Analyst
That's fair. And the second question with regard to M&A activity, would you
say that you are -- your integration team right now is a bit on the stretch
decide with Degussa or do you actually think you have capacity to make
acquisitions say in the next call it quarter or two?
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UNIDENTIFIED COMPANY REPRESENTATIVE
I would say that the importance of the Degussa acquisition was to test the
team and give them experience at a much lower risk to the Corporation. I
think that learning has been rapid. And I think it has been very beneficial
to the team to have this experience. So I would say that if we did
additional deals in the near-term, there is capacity that I think more
importantly we have a very efficient, effective organization that could
execute and bring it home. That was really my biggest worry just capacity
early on. So we built that capacity and not to say that we are going to
have a period where you're going to see deal after deal; again it comes
down to are there any good deals out there? Can we find the ones that are
good for Ashland, for shareholders and create that value. So again that is
the determinant of the pace. Not necessarily that we have capacity.
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JOHN MCNULTY - CSFB - Analyst
Great. Thanks a lot.
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OPERATOR
(OPERATOR INSTRUCTIONS). [Gabe Marshank] with CR Intrinsic Investors.
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GABE MARSHANK - CR Intrinsic Investors - Analyst
Two quick questions for you. First, how does the shareholder vote fit into
the acquisition game plan?
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UNIDENTIFIED COMPANY REPRESENTATIVE
This is as far as acquisitions?
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GABE MARSHANK - CR Intrinsic Investors - Analyst
Yes.
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UNIDENTIFIED COMPANY REPRESENTATIVE
We have no acquisitions at this point in time that are far enough along or
would be the size that would require a shareholder vote.
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GABE MARSHANK - CR Intrinsic Investors - Analyst
But the acquisitions that we're speaking about of the larger scale that you
are now referring to, is that going to require a shareholder vote?
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UNIDENTIFIED COMPANY REPRESENTATIVE
Generally not. The Board of Directors has the authority to make
acquisitions. We aren't represented by general counsel here, our securities
council I would leave the question to them. But I don't think Jim is the
type of transactions he was talking about are the nature that would require
a shareholder vote.
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GABE MARSHANK - CR Intrinsic Investors - Analyst
Okay. Secondly, the premise you're operating under is that the asset mix
has been the reason for the multiple discount to the company, which seems
an impossible argument to prove or disprove. However, with the net cash you
have on the balance sheet, it is clear that the remaining ASH businesses
would have a more efficient capital structure or could have a more
efficient capital structure. But from your $2 billion acquisition potential
comments it seems you're not really considering dividending out that cash
or levering up and doing a dividend further from the -- further than the
proceeds from APAC.
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UNIDENTIFIED COMPANY REPRESENTATIVE
The basic strategy has been to locate and grow the Company and create value
for our shareholders. And in lieu of having good opportunities we have
returned capital to the shareholder to maintain certain capacity for the
organization for its growth. That premise has not changed. So as we did the
APAC transaction it was clear that the $2 billion worth of capacity we have
sufficient capacity in our minds to do the transformation that we believe
is before us as far as the Corporation. So given that premise, we're taking
those proceeds, return it to our shareholders to create shareholder value.
That's not to say that in the future if we cannot find adequate type
opportunities that we won't return more capital to shareholders. But today
we're reserving that capital for growth and we believe that given the
environment that we are in, that the environment will soften in the future
as far as values and that we will have the opportunity to do very high
performing type transactions. That is our premise going in and that is the
types of work that we're doing to identify those kind of opportunities. But
that's not to say that over time we can't -- that more capital cannot be
returned to the shareholder, but that is not the decision we're making
today.
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GABE MARSHANK - CR Intrinsic Investors - Analyst
And then just a clarification if I could. Is there some sense of a
timeframe upon which you would operate to determine at which point it would
be appropriate to potentially return more capital?
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UNIDENTIFIED COMPANY REPRESENTATIVE
I think it is more than just timeframe, it is how the Company's performing;
it is opportunities, the assessment the board has with those opportunities
and alternative uses for cash. And over time we will definitely make
decisions in favor of those that bring the highest possible return to our
shareholders over time.
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UNIDENTIFIED COMPANY REPRESENTATIVE
Let me also add that we would not do any distribution that we would think
would risk the IRS viewing us as having violated the agreement that we've
entered into.
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OPERATOR
Dennis Delafield, Delafield Asset Management.
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DENNIS DELAFIELD - Delafield Asset Mgmt - Analyst
You may have already addressed this and I may have missed it, but of the
special dividend, if, as and when it takes place in whatever amount that
is, will that be a taxable dividend?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
It would be treated as any other dividend. It would be taxable.
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DENNIS DELAFIELD - Delafield Asset Mgmt - Analyst
It wouldn't be return of capital or something along those lines?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
It would not be return of capital but it should be treated at the favorable
15% maximum rate.
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DENNIS DELAFIELD - Delafield Asset Mgmt - Analyst
I understand. I just want to see if there was any possibility of return of
capital. Thank you.
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DARAGH PORTER - Ashland, Inc. - VP, Finance, Treasurer
And let's take one more question.
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OPERATOR
Jeff Zekauskas, JPMorgan.
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UNIDENTIFIED SPEAKER
Yes, this is (indiscernible) again for Jeff. Before you had mentioned that
you are interested in making acquisitions in the area of adhesives, water
technologies and composites, and when we look at the players in the
industry it seems that players in adhesives and water technologies also
have -- these are like similar goals to the players in the industry.
Meaning everybody seems to be willing to acquire to build out these assets.
So in the event you can't make an acquisition would you be willing to sell
your own assets? And would that make sense?
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MARVIN QUIN - Ashland, Inc. - CFO, SVP
All I can say is that hopefully the management of Ashland has demonstrated
that they will make decisions for the best interests of their shareholders.
And in lieu of whatever the marketplace will offer we will make the best
decisions at the time and do the appropriate action that is in favor of our
shareholders.
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DARAGH PORTER - Ashland, Inc. - VP, Finance, Treasurer
Thank you very much for joining us today. Goodbye.
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OPERATOR
Thank you for your participation in today's conference. This concludes the
presentation. You may now disconnect. Good day.