SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): March 9, 2005
ASHLAND INC.
(Exact name of registrant as specified in its charter)
Kentucky
(State or other jurisdiction of incorporation)
1-2918 61-0122250
(Commission File Number) (I.R.S. Employer
Identification No.)
50 E. RiverCenter Boulevard, Covington, Kentucky 41012-0391
(Address of principal executive offices) (Zip Code)
P.O. Box 391, Covington, Kentucky 41012-0391
(Mailing Address) (Zip Code)
Registrant's telephone number, including area code (859) 815-3333
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[X] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 2230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 8.01. Other Events
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On March 9, 2005, Ashland Inc. ("Ashland") received a letter from
Atticus Capital, L.L.C. ("Atticus"), an investment management firm, which
states that Atticus holds Ashland common stock and expresses Atticus'
concern regarding Ashland's previously announced proposed transaction with
Marathon Oil Corporation ("Marathon") for the transfer of Ashland's 38%
interest in Marathon Ashland Petroleum LLC ("MAP") and certain other
assets.
As previously disclosed, Ashland and Marathon are discussing with the
Internal Revenue Service possible modifications of the proposed transaction
that would allow a tax efficient transfer of Ashland's interest in MAP to
Marathon. These modifications would require Ashland and Marathon to
negotiate amendments to the Master Agreement executed by Ashland and
Marathon on March 18, 2004. There can be no assurance that an agreement on
a modified transaction will be reached.
If an agreement on a modified transaction is reached, the modified
transaction will be subject to the approval of Ashland's shareholders. In
such event, the modified transaction will be fully disclosed in an Ashland
proxy statement, which will ensure that Ashland's shareholders are in a
position to make an informed decision whether to approve the modified
transaction.
If an agreement is reached on a modified transaction, it is likely
that the transaction would not close until late in the second calendar
quarter of 2005.
Item 9.01. Financial Statements and Exhibits
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(c) Exhibits
99.1 Letter dated March 8, 2005 from Atticus Capital L.L.C. to
Ashland Inc. Board of Directors
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ASHLAND INC.
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(Registrant)
Date: March 10, 2005 /s/ David L. Hausrath
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Name: David L. Hausrath
Title: Senior Vice President,
General Counsel and
Secretary
EXHIBIT INDEX
99.1 Letter dated March 8, 2005 from Atticus Capital L.L.C. to
Ashland Inc. Board of Directors
EXHIBIT 99.1
ATTICUS CAPITAL LLC
152 West 57th Street
New York, NY 10019
Tel: (212) 373-0800 * Fax: (212) 373-0801
March 8, 2005
BY FACSIMILE & FEDEX
The Board of Directors
Ashland Inc.
50 E. River Center Boulevard
Covington, KY 41012-0391
Dear Directors:
Atticus Capital, L.L.C. ("Atticus") is an investment management firm with
assets under management exceeding $5 Billion. Our portfolio includes a
significant investment in Ashland Inc. ("Ashland"). We currently hold or
have the right to acquire 1,904,100 shares of Ashland common stock,
representing over 2.6% of the shares outstanding. As a major shareholder of
Ashland, we are writing to express our concern regarding the proposed
transaction with Marathon Oil Corporation ("Marathon") for the transfer of
Ashland's 38% interest in Marathon Ashland Petroleum LLC ("MAP") and
certain other assets (the "Proposed Transaction").
Almost one year ago, on March 18, 2004, Ashland and Marathon entered into a
series of agreements (the "Transaction Agreements") contemplating the
Proposed Transaction. At the time, Ashland announced that the Ashland Board
of Directors had concluded that the Proposed Transaction was "fair to and
in the best interests of Ashland and its shareholders." This determination
was based, in part, on the opinion of Credit Suisse First Boston LLC
("CSFB") delivered on and dated as of March 18, 2004 (the "CSFB Opinion")
that "as of that date . . .. the consideration to be received by Ashland
shareholders . . . was fair."
Since March 18, 2004, however, much has changed. Market conditions have
created what some have called the "golden age" for oil refiners. Industry
analysts and executives have predicted that these conditions will persist,
and that the current performance of the industry is something more than a
cyclical high. This has translated into significant appreciation for
refining assets. Indeed looking at the four companies CSFB identified in
the CSFB Opinion as market comparables for MAP, we see the following growth
in equity values since March 18, 2004:
Comparable Growth in Equity Value
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Premcor 89%
Sunoco 68%
Tesoro 109%
Valero 148%
This is an average growth in equity value of 103.5%, MORE THAN DOUBLING
THEIR VALUES IN THE PAST YEAR!
At the time of announcing the Proposed Transaction, Ashland also stated
that "Ashland's board of directors and executive management believe [the
Proposed Transaction] will provide superior value to all other alternatives
available to Ashland with respect to its interest in MAP." Our concern is
that the conclusions of Ashland's Board of Directors, of CSFB and of
management as to the superiority of the Proposed Transactions are no longer
valid. If the companies that CSFB identified as comparable to MAP have
doubled in value since March 18, 2004, we see no reason why the value of
Ashland's interest in MAP has not grown comparably over the past year. And
with such growth, we believe that such value now far exceeds the
consideration being offered by Marathon in the Proposed Transaction.
To illustrate, consider the range of values offered in the CSFB Opinion. In
valuing MAP, CSFB gave Ashland's interest an enterprise value ranging from
$2.2 to $3.0 Billion. APPLYING THE AVERAGE RATE OF GROWTH IN EQUITY VALUE
OF THE FOUR COMPANIES IDENTIFIED BY CSFB AS COMPARABLE, THE RANGE OF VALUE
FOR ASHLAND'S INTEREST IN MAP WOULD NOW BE $4.5 TO $6.1 BILLION. Assuming
that the other businesses that are being transferred in the Proposed
Transaction have not also grown beyond the approximately $100 million in
value given them last year, THIS ANALYSIS WOULD SUGGEST THAT MARATHON is
ACQUIRING FROM ASHLAND ASSETS THAT HAVE GROWN IN VALUE TO APPROXIMATELY
$4.6 TO $6.2 BILLION FOR A PRICE FIXED ALMOST A YEAR AGO AT JUST OVER $3
BILLION.
Given this growth in values over the past year, we believe that, CONSISTENT
WITH THEIR FIDUCIARY DUTIES, THE BOARD CAN NO LONGER RECOMMEND THE PROPOSED
TRANSACTION TO ASHLAND'S SHAREHOLDERS. In addition, even if required by the
Transaction Agreements to seek a shareholder vote, the Board should provide
shareholders with the information required to fully and fairly evaluate the
inadequacy of Marathon's proposed terms. This full and fair disclosure
should include updated valuation information that reflects the explosive
growth in equity values among comparable companies, including the very
comparables used by CSFB in their analysis. We have reviewed the
preliminary proxy statement and other disclosure documents you have filed
with the Securities and Exchange Commission to date and do not believe that
these adequately address the changes that have occurred over the past year.
We believe these changes in comparable equity values should lead the Board
to withdraw its support for the Proposed Transaction unless Marathon agrees
to substantially increase the consideration it is paying for MAP.
We remind you that the Transaction Agreements are conditioned upon receipt
of a majority vote of Ashland's shareholders. We cannot imagine how, if
well-informed of
the growth in values over the past year, your shareholders will vote to
approve a transaction that CONTEMPLATES SELLING A SIGNIFICANT ASHLAND ASSET
AT WHAT APPEARS TO BE A 33-50% DISCOUNT.
We do not believe that Ashland's status as a minority investor should
affect the Board's decision. We acknowledge that it may be difficult to
sell a 38% stake to a third party for full value. But given the right
Ashland has to put its interest to Marathon, we needn't speculate on the
interests of third parties or even what Marathon might be expected to do if
the Transaction Agreements were terminated. Ashland has stated that the
Proposed Transaction was considered superior to a sale of the MAP interests
under the put/call arrangements between Ashland and Marathon with respect
to MAP because i) it eliminated "timing and valuation uncertainties" and
ii) was structured as tax-free to Ashland shareholders. We believe that the
disparity that has grown over the past year between fair value and the
Proposed Transaction eclipse these concerns.
Under the put/call arrangements between Ashland and Marathon, Ashland may
put its interests in MAP at a purchase price equal to the fair market value
of the interest less a discount of 15% (or 10% to the extent the purchase
price is paid in equity securities). This, we assume, would be a taxable
transaction. Under the terms of the put/call arrangement, the price to be
paid by Marathon is to be based upon "the fair market value of the combined
common equity of the Company as of the relevant [exercise date of the put
or call] . . . , assuming the consummation of a transaction designed to
achieve the highest value of such combined common equity." In other words,
the price is Ashland's pro rata share of the value that one would expect to
be paid by a willing buyer who is acquiring all the outstanding equity
interests in MAP, including whatever control premium is expected to be
paid. This value is to be determined through a fairly typical process of
negotiation and competing opinions from nationally recognized investment
banking firms. At the outside, the process can take, by agreement, no more
than 200 days -- far less time than the current deal with Marathon has
taken. While uncertainty of timing (an issue that is even more opened-ended
under the Proposed Transaction) and valuation would remain a concern, we do
not believe there is room for so wide a disagreement on value that three
competent investment banking firms cannot reach reasonable agreement on a
fair value price. More importantly, whatever the precise number, given the
enormous growth in asset values we're seen in the past year, we do not
believe that this fair value price -- even in a taxable transaction -- can
yield a transaction value that is inferior to the Proposed Transaction.
To see why, you need simply to look at the CSFB Opinion. In it we are
provided with the pre-tax equivalent value for the MAP portion of the
Proposed Transaction -- $3,972 Million. In other words, we are told that a
taxable transaction must involve total consideration in excess of roughly
$4 Billion to be superior to the Proposed Transaction. UNDER OUR UPDATED
RANGE OF VALUES, ASHLAND IS LEAVING $500 TO $1,500 MILLION OF VALUE ON THE
TABLE, EVEN AFTER TAKING THE BENEFITS OF A TAX-FREE TRANSACTION INTO
ACCOUNT. Furthermore, the benefit of a tax-free transaction comes with the
burden of substantial ongoing restrictions on the use of cash and the
company's ability to return capital to shareholders. All things being
equal, shareholders should prefer a transaction
that does not come with these hindrances. Finally we note that even if
Marathon is successful in changing the IRS's most recent position, we are
concerned that the growth in market values alone may be enough to trigger a
significant tax liability for Ashland under Section 355(e).
So, in short, we ask the Board to do what we are certain it knows to be its
duty. We ask you to reconsider your recommendation of the Proposed
Transaction in light of current market conditions and asset valuations. We
ask you to revisit the disclosure you intend to make to your shareholders
on these issues to ensure that shareholders will be in a position to make a
fully and fairly informed decision on whether or not to approve the
Transaction Agreements. This disclosure should address how the growth in
asset values has impacted the Board's, management's and their advisers'
view on fairness. It should also address what tax implications may now
arise from greater and greater expected trading values for "New Ashland"
shares and what this means for the relative costs of a tax-free structure.
As long-term shareholders of Ashland, we continue to support the company
and its management team. We appreciate the opportunity to share our views
with you in hope that you find them useful. Please do not hesitate to
contact me if you wish to discuss our issues. We would always welcome the
opportunity to meet with members of the Board and management to have these
discussions in person.
Sincerely,
/s/ Timothy R. Barakett
Timothy R. Barakett
Chairman and Chief Executive Officer