Ashland plans $2.7 billion in bank and bond debt for Hercules purchase

By Sara Rosenberg

New York, July 11 - Ashland Inc. has received a commitment for $2.7 billion in debt financing for its purchase of Hercules Inc. that will be comprised of a new credit facility and bonds, company officials said in a conference call Friday.

Bank of America and Scotia Capital are the lead banks on the financing.

The debt commitment "consists of commercial bank and institutional secured loans, as well as senior notes," officials said.

Of the total commitment amount, $2.2 billion is expected to be drawn at closing.

The remaining $500 million of commitment consists of a revolving credit facility that will be used to provide liquidity, officials remarked in the call.

At close, debt to EBITDA is estimated to be in the area of 3.2 times to 3.3 times.

Ashland's target is to reduce its leverage to between 1.5 times to 2.0 times EBITDA within two to four years by using excess cash flow, which is important to achieving the company's goal of an investment grade credit rating, officials added in the call.

Under the transaction agreement, Ashland is buying Hercules for $18.60 per share in cash and 0.093 of a share of Ashland common stock. The total transaction value is about $3.3 billion, including $0.7 billion of net assumed debt.

Ashland anticipates refinancing Hercules' existing bank debt and 6¾% notes in connection with the acquisition.

Upon close, Ashland will have pro forma combined revenue for the 12 months ended March 31 of more than $10 billion, including about $3.5 billion generated outside North America. For the same period, Ashland generated EBITDA of $365 million excluding certain items, while Hercules reported ongoing EBITDA of $392 million, excluding certain items.

Closing is expected to occur by the end of the year, subject to the approval of Hercules' shareholders, the receipt of regulatory approvals and other customary conditions

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.

Ashland is a Covington, Ky., chemical company. Hercules is a Wilmington, Del., manufacturer and marketer of specialty chemicals.

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