Ashland aims to cut post-acquisition debt with free cash flow

By Devika Patel

Knoxville, Tenn., April 26 – Ashland Inc. will use its free cash flow to pay down debt that it will take on as part of its planned $660 million acquisition of Pharmachem Laboratories, Inc.

The company hopes to reach its targeted leverage ratio of 3.5x within a couple of years.

“We intend to finance [the Pharmachem acquisition] through a combination of bank debt and cash on the balance sheet,” senior vice president and chief financial officer J. Kevin Willis said on the company’s second quarter earnings conference call on Wednesday.

“We expect the incremental interest expense to be approximately $20 million per year and paying down debt would be our primary use of free cash flow until we achieve our targeted leverage ratio of 3.5x gross debt to EBITDA.

“Based on current projections, we think it will take a couple of years to reach that target,” Willis said.

The executive said that the company had nearly $1.3 billion of liquidity as of the end of the fiscal second quarter.

“Furthermore, Ashland’s liquidity remains strong,” he said.

As of March 31, Ashland had cash and borrowing capacity of nearly $1.3 billion.

On April 17, Ashland Global Holdings Inc. announced that its subsidiary Ashland LLC plans to acquire Pharmachem Laboratories, Inc. for $660 million in cash, which will be funded with bank financing and available cash.

The purchase price of $660 million represents a transaction multiple of about 10.5 times Pharmachem’s estimated fiscal 2017 adjusted EBITDA, or about 7.5x after adjusting for expected cost synergies and tax optimization.

The deal is expected to close before the end of the June quarter.

Ashland is a chemical company based in Covington, Ky.

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