Activist shareholder targets Ashland

Ancora Holdings has released a presentation calling for a sale of speciality chemicals Ashland, in which it has reportedly acquired a “significant” stake, to a strategic or private equity buyer. The Cleveland-based investor said it plans to “engage in a constructive and open dialogue” with the board. 

Among other things, Ancora claimed that Ashland’s shares are trading at 9.6 x EBITDA, below its historical median of ~11.0 x and much less than they should. It noted that Ashland “has the ultimate scarcity value of an established platform with diversified end market exposure, high-margin assets, long qualification cycles and high switching costs”. 

The Life Sciences and Personal Care segments account for 75-80% of its EBITDA and have EBITDA margins in the high-20s. “These are differentiated, hard-to-displace ingredient businesses in resilient consumer end markets where Ashland holds both technology leadership and market share, providing the company with deep customer relationships and product stickiness,” Ancora said.

Ancora also criticised the strategy of CEO Guillermo Novo (pictured) in pivoting to investment-led organic growth over the past three years. This has not delivered any volume benefits, it claimed. Ashland has missed consensus estimates in four of the last five quarters and the share price fell by almost 15% after it revealed its Q2 earnings figures.

Ancora has carried out due diligence and claimed that indicates “there is also currently meaningful interest in Ashland from other potential strategic acquirers and sponsors, which could set the stage for a competitive process”. It projects that a take-out could be executed at a base case 11.5 x multiple, representing a 33.1% premium to the current share price.

In response, the Ashland board said that they and the management team “are committed to driving sustainable value creation for all shareholders” and “welcomes constructive input from shareholders”.  Although Ancora did not engage with Ashland prior to issuing its presentation, ithe company intends to engage with Ancora in a manner consistent with that commitment.

“Ashland remains focused on its growth strategies to execute, globalize, innovate and invest while continuing to improve operational performance and cash generation,” the statement added. “Ashland believes these priorities will continue to position the company to convert its transformation into sustained financial and operating performance.”