Kentucky, US-based Ashland, which makes chemicals for the construction, automotive and water treatment sectors, will pay $3.2bn (€2.2bn) for New Jersey-headquartered ISP in an agreement expected to close in September.
Ashland said that the acquisition will strengthen its position in many high growth, high margin markets such as personal care, with its skin care, hair care and oral care sectors, as well as targeting the pharmaceutical market.
Expanding market position in personal care
“This defining transaction enables us to significantly expand our market positions in higher margin, higher growth and less cyclical global markets like personal care”, said Ashland’s CEO James O’Brien.
“It broadens Ashland’s presence within attractive growth areas like skin, hair, and oral care, which are large and fast-growing segments of the $5-billion-plus personal care specialty ingredients market. In addition, we expect to more than double the size of our highest-margin functional ingredients business.”
In the case that Ashland cannot satisfy any of the closing conditions, ISP has a right to terminate the agreement and ask it to pay a compensation fee of $413 million.
Acquisition should close in September
Expecting to close the acquisition in September, Ashland is also aiming to achieve full synergies by its second year and annual cost savings of approximately $50 million.
ISP has a strong global position with approximately 60 percent of the company’s total revenue being generated outside of North America; and with its personal care sector which accounts for 47 percent of the company’s total revenue.
In comparison, Ashland has 42 percent of its revenue coming from outside North America. With the addition of ISP, the total revenue of Ashland is expected to from $6 billion to £7.6 billion annually.
Skin, hair and oral care
ISP’s personal care includes skin, hair and oral care product lines and consists of skin lotions, anti-aging products, shampoos and conditioners, mousses, gels, toothpastes, and mouthwashes.
The main driver for the deal seems to be ISP’s nutrition and personal care units which, according to a report on the New York Times’ DealBook site, generate three quarters of the privately-owned firm’s operating income each year.
ISP’s pharmaceutical business, which contributes the remainder of its $1.6bn annual revenue, is based on the provision of third-party synthesis services as well as solubilisation, coating, disintregrant and binding technologies.