Filed by Ashland Inc. pursuant to Rules 165 and 425
promulgated under the Securities Act of 1933, as amended,
and deemed filed pursuant to Rule 14a-12 promulgated under
the Securities Exchange Act of 1934, as amended.
Subject Company: Ashland Inc.
Commission File No.: 001-02918
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FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include those that refer to
Ashland's expectations about the MAP transaction. Although Ashland believes
its expectations are based on reasonable assumptions, it cannot assure the
expectations reflected herein will be achieved. The risks, uncertainties,
and assumptions include the possibility that Ashland will be unable to
fully realize the benefits anticipated from the MAP transaction; the
possibility the transaction may not close including as a result of failure
to finalize the closing agreement with the Internal Revenue Service or
failure of Ashland to obtain the approval of its shareholders; the
possibility that Ashland may be required to modify some aspect of the
transaction to obtain regulatory approvals; and other risks that are
described from time to time in the Securities and Exchange Commission (SEC)
reports of Ashland. Other factors and risks affecting Ashland are contained
in Ashland's Form 10-K, as amended, for the fiscal year ended Sept. 30,
2004, filed with the SEC and available on Ashland's Investor Relations
website at www.ashland.com/investors or the SEC's website at www.sec.gov.
Ashland undertakes no obligation to subsequently update or revise the
forward-looking statements made in this document to reflect events or
circumstances after the date of this document.
ADDITIONAL INFORMATION ABOUT THE MAP TRANSACTION
In connection with the proposed transaction, Ashland filed a preliminary
proxy statement on Schedule 14A with the SEC on June 21, 2004 and an
amended preliminary proxy statement on Schedule 14A on August 31, 2004. ATB
Holdings Inc. and New EXM Inc. filed a registration statement on Form S-4,
which includes a further amended preliminary proxy statement/prospectus,
with the SEC on October 12, 2004. Investors and security holders are urged
to read those documents and any other relevant documents filed or that will
be filed with the SEC, including the definitive proxy statement/prospectus
regarding the proposed transaction as they become available, because they
contain, or will contain, important information. The definitive proxy
statement/prospectus will be filed with the SEC by Ashland, and security
holders may obtain a free copy of the definitive proxy statement/prospectus
when it becomes available, and other documents filed with the SEC by
Ashland, including the preliminary proxy statement at the SEC's website at
www.sec.gov. The definitive proxy statement/prospectus, and other documents
filed with the SEC by Ashland, including the preliminary proxy statement,
may also be obtained for free in the SEC filings section on Ashland's
Investor Relations website at www.ashland.com/investors, or by directing a
request to Ashland at 50 E. RiverCenter Blvd., Covington, KY 41012. The
respective directors and executive officers of Ashland and other persons
may be deemed to be participants in solicitation of proxies in respect of
the proposed transaction. Information regarding Ashland's directors and
executive officers is available in its proxy statement filed with the SEC
by Ashland on December 14, 2004. Investors may obtain information regarding
the interests of participants in the solicitation of proxies in connection
with the transaction referenced in the foregoing information by reading the
definitive proxy statement/prospectus when it becomes available.
CORPORATE PARTICIPANTS
WILLIAM HENDERSON
Ashland Inc. - IR
JIM O'BRIEN
Ashland Inc. - CEO
MARVIN QUIN
Ashland Inc. - CFO
STEVE GORDON
Cravath, Swaine & Moore - Tax Partner
CONFERENCE CALL PARTICIPANTS
JEFFREY ZEKAUSKAS
J.P. Morgan - Analyst
FRED LEUFFER
Bear Stearns - Analyst
LEE JING
AIG - Analyst
ROSS BERMAN
One Trust Capital - Analyst
PAUL QUIVENAL
Force Capital Management - Analyst
ANN KOHLER
IRG Research - Analyst
DARREL NORIAN
Blackrock - Analyst
FADEL GHEIT
Oppenheimer - Analyst
MATT WARBURTON
UBS Warburg - Analyst
CHI CHAO
Petrie Parkman - Analyst
ALEX MITCHELL
Focus Asset Management - Analyst
PRESENTATION
OPERATOR
Good day ladies and gentlemen and welcome to the Ashland review of an
agreement to transfer Ashland MAP interest into Marathon conference call.
My name is Raika (ph) and I will be your coordinator for today. At this
time, all participants are in a listen-only mode. We will be conducting a
question and answer session towards the end of today's conference.
(Operator Instructions). As a reminder, this conference is being recorded
for replay purposes.
I would now like to turn the presentation over to your host for today's
conference, Mr. William Henderson, Director of Investor Relations. Please
proceed sir.
WILLIAM HENDERSON - Ashland Inc. - IR
Thank you Raika and good morning everyone. Welcome our conference call to
discuss the MAP transaction with Marathon. Before we get started, I'd like
to introduce the participants in the call. We will have with us this
morning Jim O'Brien, our Chairman and Chief Executive Officer; Marvin Quin,
Senior Vice President and Chief Financial Officer; David Hausrath, Senior
Vice President, General Counsel and Corporate Secretary and Steve Gordon,
who is a tax partner was Cravath, Swaine & Moore.
I want to remind each of you that we will be making forward-looking
statements and those statements are subject to numerous risks,
uncertainties and assumptions which are also fully described in this
morning's press release in our Form 10-K. As you will hear more detail
later, the transaction we announced this morning is subject to a number of
conditions and approvals and may ultimately not be completed. I also
encourage you to read the proxy statement and prospectus when it becomes
available. Now it is my pleasure to turn the call over to Jim O'Brien, our
Chairman and Chief Executive Officer.
JIM O'BRIEN - Ashland Inc. - CEO
Thanks, Bill. Good morning everyone. This morning, we announced an amended
agreement with Marathon. The agreement would result in a transfer of our
38% ownership in Marathon to Ashland Petroleum which we referred to as MAP
and two other businesses in exchange for cash and Marathon stock totaling
approximately $3.7 billion. I am pleased to say that this compares to a
transaction value of approximately $3 billion in the earlier agreement with
the increase in value going substantially to Ashland shareholders in the
form of Marathon stock. The amended transaction is expected to be tax-free
to Ashland shareholders and tax efficient to Ashland. This again compares
favorably to the earlier transaction where Ashland bore a full
responsibility for all 355 E tax liability. As Marvin Quin will describe,
Marathon has agreed to satisfy the first $200 million of any 355 E tax
liability under section 355 E.
I want you to know that Ashland's Board of Directors took a comprehensive
look at all of the alternatives available with respect to our ownership
interest in MAP. We concluded that the transaction's tax efficient
structure was the best alternative. The increased value of $700 million
will be delivered in $600 million of Marathon's stock directly to our
shareholders and $100 million in cash. This is a significant reduction of
Ashland's tax risk. Further, this tax efficient transaction provides
certainty with respect to both the timing and the value of our interest in
MAP.
The amended transaction would result in the formation of a new corporate
entity which we will refer to as New Ashland. This would essentially be the
continuation of Ashland minus its MAP interest, its maleic business in 16
Valvoline Oil Change Centers in Michigan and Ohio. Now I will ask Marvin to
provide details of the transaction, then I will come back and talk about
the strategy for Ashland going forward. Following that, we will answer your
questions.
We view this is the first in a series of steps we're taking to better
position Ashland as a value-creating enterprise. Our guiding principles now
and going forward are to maintain a patient and disciplined approach to
growth, to take a process-centered approach to our businesses and to
achieve top quartile performance. With that, I will turn the call over to
Marvin.
MARVIN QUIN - Ashland Inc. - CFO
Thank you, Jim, and good morning everyone. I'd like to remind you we do
have slides that you can follow through the presentation and number of
numbers are represented on these slides. As Jim mentioned under the amended
agreement, Ashland and its shareholders will receive total consideration
for Marathon of $3.7 billion and will receive cash in MAP accounts
receivable of 2.8 million of which 94 million represents the value of our
maleic anhydride business and the 60 Valvoline Instant Oil ChangeCenters.
Ashland's shareholders will receive Marathon's stock worth a value of 915
million. Based upon the number of shares outstanding as of March 31,
shareholders would receive $12.66 of Marathon stock per Ashland's share.
This compares to 315 million, or $4.32 per share in the early agreement.
As you may recall, Ashland and Marathon had deferred receiving
distributions from MAP since March 18 of 2004. Such distributions will
continue to be suspended until the closing of the transaction. As a result,
the final amount of cash to be received by Ashland would be increased by an
amount equal to 38% of the accumulated cash from operations during this
period prior to closing. At March 31, 2005 Ashland's share of these funds
was $560 million. As a point of reference, our portion of MAP's free cash
flow for the June quarter has averaged slightly more than $100 million
since the formation of MAP and based upon this, let's assume our total cash
at the end of June is $700 million. The key factors affecting the closing
cash balance will be MAP's profits and capital expenditures prior to
closing, as well as factors impacting working capital such as crude oil
prices and decisions on sourcing crude oil in domestic versus foreign
markets.
Under the terms of the earlier agreement, and I'm going to tax now, the tax
on line, closing was conditioned on receipt of private letter ruling from
the IRS with respect to tax issues. Under the terms of the amended
agreement, Ashland and Marathon expect tom enter a closing agreement. The
IRS would favorably address all of these tax issues other than the basis
reduction issue which I will describe now. As previously disclosed, Ashland
would incur a Section 355 E tax gain in the transaction equal to the
difference between the fair market value of Ashland and the tax basis of
Ashland at closing. Under the closing agreement, the retention by Ashland
of certain contingent liabilities related to previously owned businesses
will reduce Ashland's tax basis. Marathon has agreed to pay the first $200
million of any 355 E tax. Ashland would pay the next 175 million of section
355 E tax if required and any remaining tax would be shared equally by
Ashland and Marathon.
Based on the number of shares outstanding as of March 31, 2005 and our
current estimate of Ashland's tax basis, we expect that Ashland would be
required to pay this tax only if our stock price from the closing date
exceeds $74.50.
Before I talk about the use of the transaction proceeds, let me spend a
minute to describe how we got here. As Jim said in the (indiscernible)
outcome, our management and Board took a fresh look at the alternatives
available to Ashland and considered what would deliver the best value for
our shareholders. Among other things, the management and Board carefully
considered are the outlook for the refining and marketing industry, the
uncertainty created by Marathon's right to call Ashland's interest in that
at any time and Ashland's tax basis in MAP. Since we first announced the
transaction last year, conditions in the refining and marketing environment
have been robust and profitability has been well above midcycle levels. We
think the increased consideration that we announced today reflects this.
Further, as most of you are aware, Marathon has the right to call our MAP
interest at any time providing great uncertainties on timing and value. The
amended agreement provides Ashland shareholders certainty with respect to
both timing and value. Management and the Board considered the merit of a
taxable transaction as compared to the agreed-upon tax efficient structure.
Given that our tax basis in MAP is less than $1.3 billion, a fully taxable
transaction would create a very large tax liability for the Company. Our
federal and state tax rate is about 39%. Therefore we estimate that the 3.7
billion tax efficient agreement would equate to a $5.2 billion taxable
transaction. We believe that the certainty and value provided in the tax
efficient transaction provides the best alternative for Ashland's
shareholders. As Jim mentioned, this transaction delivers $915 million of
this value directly to our shareholders in Marathon's stock.
Now let's address Ashland's capital structure and the use of proceeds. In
arriving at the decision to pursue the transaction under the amended
agreement, management and the Board waived the restrictions that the tax
efficient structure poses on the use of proceeds versus the overall value
that is being delivered to Ashland and its shareholders. We do not intend
use the proceeds to repurchase stock or to pay a special dividend.
Long-term we would expect our capital structure to eventually look more
like a typical industrial company. We also expect to continue our regular
quarterly $0.275 dividend which equates to $1.10 per year.
With respect to near-term use of proceeds, Ashland intends to reduce or
eliminate debt in other forms of financial leverage. Specifically, we plan
to repay all of our public bank debt which totaled $1,811,000,000 as of
March 31, 2005. We expect to repay the $150 million of receivables
financing program that is now outstanding and various leases which might
total 100 million. We will have additional debt redemption and other costs
amounting to about 100 million. We also expect to contribute approximately
100 million to our qualified pension plans which would cost us 60 million
after tax. At September 30, '04 our pension assets were 980 million --
excuse me -- $908 million which equaled 97 -- 91% of our approved pension
liabilities. The addition 100 million funding should fully fund our
qualified pension plans.
We also expect to make tax payments related to MAP's normal pre-closing
operating income, which is likely to be in the range of 100 to $150
million. Once again, we expect to incur 355 E taxes if our stock price
exceeds $74.50 on the day of closing. If you take the 2.8 billion in cash
we received from MAP -- excuse me, from Marathon -- plus the 700 million in
deferred MAP distributions and deduct the above usage, we would arrive at
roughly 1.1 billion in cash remaining after the transaction.
Longer-term, it is our intention to be very disciplined and patient in our
investment approach. The central focus of our investment strategy will be
on organic growth in our core businesses. To the extent we consider
acquisitions, we will focus on our core businesses and on investing in
related businesses. Any acquisition will need to pass a regular screening
of whether the synergies justify the price and whether we can effectively
integrate it into our existing systems and processes.
With respect to uplaying (ph) income, our New Ashland will not have the
contribution from the maleic anhydride business and the 60 VIOC stores,
which totaled 8.2 million for 2004 and $1.7 million for the first six
months of 2005. After closing, we would retain some costs related to the
transferred businesses, including post-retirement benefit cost of former
Ashland Petroleum and Super American division employees. The costs are
related to individuals who retired prior to the formation of MAP. We would
also have some remaining environmental cost for closed terminals,
refineries and service stations that were never placed in MAP. These costs
plus some corporate overhead allocations are now allocated to the refining
and marketing business. These stranded costs might be $15 million in the
next 12 months and should gradually decline over time.
The payment of leases would eliminate at least $24 million in annual lease
or vent (ph) expenses, but it may raise depreciation cost by about $10
million annually. Obviously we would expect to eliminate essentially all
interest expense although we would have interest income on our cash
balances.
Finally, I want to emphasize that this transaction expands our commercial
relationships with MAP and Marathon in a number of ways. MAP is currently a
supplier to our Valvoline, APAC and chemical distribution businesses,
selling us leach products, asphalt and solvents. MAP is also a customer for
our packaged products from Valvoline and water treatment chemicals provided
by our specialty chemical division. MAP will become the sole supplier of
maleic anhydride for our domestic unsaturated polyester resin business and
will become our largest Valvoline Instant Oil chain franchisee. The
transaction is subject to among other things approval by Ashland's
shareholders, consent from public debt holders, finalization of the closing
agreement to the Internal Revenue Service and customary antitrust review.
As with the original transaction, under the terms of the amended agreement,
we're not obligated to close unless we receive consents from 90% of the
principal amount of long-term debt. Consents for two-thirds of an
individual series represents consent of the entire series. If we fail to
obtain the 90% consent level, Ashland has the option to waive this
condition and close the transaction. Ashland and Marathon have agreed to
use reasonable best efforts to complete the transaction by June 30 with the
termination date extended to September 30, 2005. Now let me turn the
program back over to Jim.
JIM O'BRIEN - Ashland Inc. - CEO
Thanks, Marvin. As Marvin has already provided details about the
transaction and why we believe it provides the best alternatives for our
shareholders, while we have been pleased with the performance of the joint
venture and our relationship with Marathon, the transfer of Ashland's
interest in MAP to Marathon is an important step in achieving the Company's
strategic objectives.
After the close of this transaction, we will own four divisions in two
sectors -- chemical and transportation construction. Both sectors are
focused on meeting customers' needs, enabling growth through process
improvement and achieving top quartile performance. The Chemicals sector,
which includes the Ashland Distribution, Ashland Specialty Chemical and
Valvoline divisions, is creating a sustainable low-cost business structure
providing a model for effective integration of acquisitions and driving
market expansion. To enable growth, they also are focusing on innovative
research and development of new products and services.
The Transportation Construction sector, commercially known as Ashland
Paving and Construction, or APAC, is executing strategies that should help
it to increase its share of major projects, strengthen its marketing and
business development capabilities and improve operational efficiency. As we
integrate Ashland's businesses, we continue to find new sources of
competitive advantage, creating actionable strategies with measurable
targets and operating as a unified organization.
In summary, our disciplined investment approach will focus on expanding and
strengthening our core businesses through organic growth. This is an
historic moment for Ashland. We're really excited about this transaction
and the prospects for Ashland's future. We believe the timing of this
agreement and the value we will be able to deliver to our shareholders
offers us the best alternative going forward. As Marvin discussed, we will
continue our mutually beneficial business relationships with Marathon. I
want to thank Marathon for the successes we have shared through the MAP
joint venture and look forward to continuing to work as both customer and
supplier to Marathon and as a partner with them as our largest Valvoline
Instant Oil Change franchisee.
This deal marks a new era for Ashland. I am confident that we are well
positioned to create long-term value for our shareholders. As we have said
in the past, we clearly recognize that the measure of this management team
going forward will be how well we preserve, improve and deliver this value
to our shareholders. Now we will be happy to answer any questions you have.
QUESTIONS AND ANSWERS
OPERATOR
(Operator Instructions) Jeffrey Zekauskas, J.P. Morgan.
JEFFREY ZEKAUSKAS - J.P. Morgan - Analyst
Hi, good morning. A couple of questions. If it turns out that Marathon has
to pay the 200 million in 355 E tax, is that 200 million something that
Ashland will have to pay taxes on because it's a benefit to Ashland?
JIM O'BRIEN - Ashland Inc. - CEO
Let me have Steve Gordon respond.
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
The simple answer is no. Because of the structure of the transaction,
Marathon will be acquiring what's essentially the former parent of our tax
group and that's where that liability will be located. So its payment of
that liability won't be a benefit to New Ashland that tax will have to be
paid on.
JEFFREY ZEKAUSKAS - J.P. Morgan - Analyst
Thank you. Second question is -- if you're going to have roughly, call it
1.2 billion in cash, then presumably you've thought about how you might
invest it. So in rough terms, what's your target for your pretax return on
that 1.2 billion on an annualized basis?
JIM O'BRIEN - Ashland Inc. - CEO
Jeff, we've given this a lot of consideration obviously and we've sat down
with our Board and talked about the various strategies and we have spent a
lot of time talking to the market about our intent on this cash. And now
that the transaction appears to be on a track of completion, we have not
changed our opinion of how we want to go forward. And basically, we realize
that that cash will be sitting there and we're going to invest it
short-term in interest-bearing types of opportunities. As we look at our
longer-term growth, we have specifically said our immediate opportunities
are going to lie in the chemical sector. We believe they are more organic
in nature. We're also going to be looking at opportunities as they become
available in things that we have interests. As far as complementary type
transactions, we have said that the target is between 100 to $500 million
in size. We're going to be very patient as far as evaluating those
activities and those opportunities. We also have a very stringent review
process by which as a project is being evaluated, it has to pass our
hurdles and it has to be strategic and it also has the past our contra (ph)
team as far as reasons why we should not do the transaction.
So our intent is no different than it was before. We're going to be very
patient, we're going to be very methodical and we're going to look at
things very comprehensively in how we go forward. But our specific interest
today is on organic growth and we think that presents our best opportunity.
So again we're going to be very patient and as I said in the past, I think
the expectation in the market should be that we consume this cash for some
time.
JEFFREY ZEKAUSKAS - J.P. Morgan - Analyst
Thank you very much.
OPERATOR
Fred Leuffer, Bear Stearns.
FRED LEUFFER - Bear Stearns - Analyst
Good morning. Congratulations Jim, Marvin, Bill. I just had a couple of
questions, Jim. First, how long before you could consider repurchasing
stock or issuing some kind of special dividend or something like that?
JIM O'BRIEN - Ashland Inc. - CEO
That's a great question, and I think the best person to answer that is
Steve Gordon with Cravath. Steve?
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
Right now, we're trying to finalize the closing agreement concerning the
transaction with IRS, and that's not yet complete. Our expectation is that
once that is complete, the tax structure would probably permit a certain
amount of stock to be repurchased under the relevant tax rules.
Nevertheless, the structure adopted to achieve those tax goals also imposes
some non-tax considerations that would have to be taken into account. As a
result right now, the Company does not have any intention to repurchase its
stock.
FRED LEUFFER - Bear Stearns - Analyst
Okay.
JIM O'BRIEN - Ashland Inc. - CEO
I'm sure that was perfectly clear, Fred.
FRED LEUFFER - Bear Stearns - Analyst
Well, anytime you have a lawyer answer the question, I'm sure it's
perfectly accurate, but it's usually useless. My fault for asking, sorry.
That's one I think you can't answer directly. The Marathon share
distribution -- is this a fixed-dollar amount of 950 million, or is it a
fixed number of share?
MARVIN QUIN - Ashland Inc. - CFO
Fixed dollar.
FRED LEUFFER - Bear Stearns - Analyst
To be to determine at the closing?
MARVIN QUIN - Ashland Inc. - CFO
Actually, the way it works is there's a 20-day period ending three days
prior to closing, and it's the average stock price during that 20-day
period. But in near parlance, it's a fixed dollar.
FRED LEUFFER - Bear Stearns - Analyst
Terrific. And just lastly, I'm assuming that the Marathon share
distribution to Ashland's shareholders will be treated as a tax-free spin
(ph)?
JIM O'BRIEN - Ashland Inc. - CEO
That's correct, Fred.
FRED LEUFFER - Bear Stearns - Analyst
And that will just simply go to lower the basis of shareholders' tax basis
in Ashland?
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
Essentially, the shareholders' tax basis in their current Ashland shares
will be split between their tax basis and the new Ashland shares and in the
Marathon shares in proportion to their relative fair market values.
FRED LEUFFER - Bear Stearns - Analyst
Terrific. Thank you, guys, congratulations again.
OPERATOR
Lee Jing (ph), AGI.
LEE JING - AIG - Analyst
Good morning. This is Lee Jing from AIG, and this question is really for
Marvin. And I just wanted to find out if there is any premium assumptions
for the debt retirement, assuming there will be a tender for the
outstanding debt?
MARVIN QUIN - Ashland Inc. - CFO
Yes. What we will be offering what we consider a fair value. Obviously the
public debt trades at a premium today and we will be offering a fair value
for the debt and at a level which we would expect to receive the required
consents.
LEE JING - AIG - Analyst
Thank you.
OPERATOR
Ross Berman (ph), One Trust (ph) Capital.
ROSS BERMAN - One Trust Capital - Analyst
Thanks very much, congratulations guys. I have one question that was just
relation to -- you expect the capital structure ultimately to look like a
more typical industrial company. Can you maybe just tell us what your
interpretation of that is?
MARVIN QUIN - Ashland Inc. - CFO
Yes. We would like to be a an investment-grade corporation which we think a
triple-B or a triple-B type minus credit rating or maybe even triple-B plus
makes sense for us long-term. This would imply some debt and depending on
how the rating agencies look at things at the time, that may be 30% debt to
cap, or maybe a better was of looking at it is a multiple two or three
times EBITDA, something of that order of magnitude.
ROSS BERMAN - One Trust Capital - Analyst
Alright, thanks very much.
OPERATOR
Paul Quivenal (ph), Force (ph) Capital Management.
PAUL QUIVENAL - Force Capital Management - Analyst
Hi, guys. Thanks for taking the call. Just a couple of quick questions.
Could you clarify how many shares you could repurchase under the agreement
and ultimately, if you -- I guess why would you be constrained from
purchasing shares? And also, would you entertain a bid for the company?
JIM O'BRIEN - Ashland Inc. - CEO
Well those are obviously excellent questions of which we have no answers
for at this time. But as you look -- if you look at the last one, we have
no intent of putting the company up for sale. We really believe in our
strategy, we believe in the shareholder value we're creating and that is
the strategy we're moving down.
As far as other expansive type questioning on the tax basis, I think Steve
kind of gave you all he can give you at this stage of our development we've
worked with the IRS, because again that particular document is not
complete. So until that's completed and the deal is closed, our intention
as Marvin has stated is not to have a special dividend (indiscernible) have
a buyback program, and that's our intent.
PAUL QUIVENAL - Force Capital Management - Analyst
Okay. But in the agreement as it's sort of being worked out, is there any
sort of base level of shares that it allows for?
JIM O'BRIEN - Ashland Inc. - CEO
Again, that agreement is still under discussion, so we really can't comment
on it.
PAUL QUIVENAL - Force Capital Management -
Analyst
Okay, thanks.
OPERATOR
Ann Kohler, IRG
Research.
ANN KOHLER - IRG Research - Analyst
Thank you. Good morning gentlemen and congratulations. Just a question.
What since the IRS has been a roadblock here, kind of what, if you could
walk me through what needs to be worked on with the IRS and in the next I
guess 1.5 months to get that transaction completed from their side of the
ledger?
JIM O'BRIEN - Ashland Inc. - CEO
We'll have Steve answer that question.
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
The IRS, we're engaged in discussions with the IRS concerning a closing
agreement that would take the place of a private letter ruling for the
transaction. Those discussions are very far advanced and we expect to
complete them shortly. As has been noted, they will require a -- we
anticipate that they will require a reduction of the new Ashland stock
basis for certain assumed contingent liabilities. Otherwise, we believe
that it will be relatively straightforward based on where we are right now.
So it still needs to be completed.
ANN KOHLER - IRG Research - Analyst
Thank you.
OPERATOR
Darrel Norian (ph), Blackrock.
DARREL NORIAN - Blackrock - Analyst
Hi, I had just two questions. One, on slide six where you kind of go
through the uses of the cash, does that net cash number include or exclude
the expected distribution you guys would get from MAP at the closing?
MARVIN QUIN - Ashland Inc. - CFO
Includes.
DARREL NORIAN - Blackrock - Analyst
It includes that, okay. And the secondly, can you just review for me the
tax consequences. If the stock is above the 74.50, do you guys -- or would
just be responsible for taxes on the spread of the stock price above that,
correct?
MARVIN QUIN - Ashland Inc. - CFO
Yes. An easy way thinking about it is 39% of any market value above that
74.50 is tax that would be paid to the IRS and to the states.
DARREL NORIAN - Blackrock - Analyst
Great, thanks very much.
OPERATOR
Fadel Gheit, Oppenheimer.
FADEL GHEIT - Oppenheimer - Analyst
Jim and company, good morning. I have several questions. One, how is the
stock portion of the transaction is right at (ph) -why only 915? Why isn't
it 2 billion in spot and 1 billion in cash, or 1.7 billion in cash?
JIM O'BRIEN - Ashland Inc. - CEO
As we sat down and looked at all of the alternatives and ways to create
shareholder value for the holders of our shares, the Board and myself tried
to create as much value that we could deliver directly in the hands of the
shareholder immediately. As we sat down with Marathon and negotiated this,
we pushed them and pushed them on the amount of stock that we could get
into the hands of our shareholders, and this is where we -- our agreement
fell, 915 million.
FADEL GHEIT - Oppenheimer - Analyst
Just a clarification, the IRS did not impose the apportionment of the cash
versus stock, correct? It is a negotiated deal between the two companies?
JIM O'BRIEN - Ashland Inc. - CEO
It was a negotiated deal between the two companies and that is where we
came to between the two companies, between Marathon and Ashland -- their
willingness to give stock and our willingness to ask for stock, and it came
to 915, so that was the agreement.
FADEL GHEIT - Oppenheimer - Analyst
But hypothetically speaking, you could -- if the companies would agree to
it, you could have taken more stock?
JIM O'BRIEN - Ashland Inc. -
CEO
That's true.
FADEL GHEIT - Oppenheimer - Analyst
Which would have meant more tax-free money to the shareholders?
JIM O'BRIEN - Ashland Inc. -
CEO
That's true.
MARVIN QUIN - Ashland Inc. - CFO
And it takes the other party to agree to that.
JIM O'BRIEN - Ashland Inc. - CEO
That's right. But as I said, this was the agreement after extensive
negotiations and discussions. As you all know, this deal was starting to be
reworked again about seven months ago. So this is nothing that we took
lately; we took it very seriously and tried to create as much value that we
could transfer to the hands of our shareholders immediately. and that is
where the agreement fell.
FADEL GHEIT - Oppenheimer - Analyst
Okay. Let us walk through the scenario that you concluded is deal. Would
this deal bargain from restructuring the Company further or changing the
makeup of the company trading asset bartering with -- from other companies
to emphasize the areas that you think are higher growth areas? Would that
prevent you from doing so?
MARVIN QUIN - Ashland Inc. - CFO
We can't speculate on the transaction that's not well-defined. Any time
you're asking about tax questions, you have to get into very specifics.
FADEL GHEIT - Oppenheimer - Analyst
But this deal stipulated uncertainty (ph) you cannot buy back your stock,
you cannot pay dividend. What else you cannot do to not to violate the
terms of the agreements with the IRS?
JIM O'BRIEN - Ashland Inc. - CEO
There's really no other restrictions besides that. So just broadly to your
answer, there are new other restrictions.
FADEL GHEIT - Oppenheimer - Analyst
Okay, thank you.
OPERATOR
Matt Warburton, UBS Warburg.
MATT WARBURTON - UBS Warburg - Analyst
Good morning, everybody. A couple of questions on tax. Marvin on the call
on Monday, you suggested that the tax for the group would be around the
38.5% level for the balance of the year and on a go-forward basis. In the
initial proxy form the implication was that post on that deal, the tax on a
go-forward basis for the residual group would be around 34.5%. Is that
still the expectation that the group tax charge would fall as a basis of
getting rid of the MAP assets?
MARVIN QUIN - Ashland Inc. - CFO
Well, we will be refiling the documents to the SEC perhaps as early as
tomorrow and it will have pro formas in there. We would have, typically
have a lower overall tax rate than our marginal tax rate. Our marginal tax
rate on income is 39%, but our average tax rate is -- book tax rate -- is
somewhat less than that because of various preferences or special
situations or foreign sourced income, etc.
MATT WARBURTON - UBS Warburg - Analyst
Question for Jim. Jim, you mentioned in your comments that the title (ph)
acquisition you might be looking at is between 100 and 500 million. In
terms of the Company stands at the moment, what do you see as the capacity
either in systems, personnel?
I know you -- obviously, you put a more acquisition screening criteria and
plan and you talked about that last year. As we stand at the moment, what
do you see as the capacity of the business to absorb incremental assets for
the next 6 to 12 months?
JIM O'BRIEN - Ashland Inc. - CEO
There's never been any 6 to 12 months. One of the things we're really
focusing on is getting the Chemicals sector integrated, then getting the
right processes to have a broader Company to drop in acquisitions. So as I
look over the next 6 to 12 months, we are not anticipating any acquisitions
at this time, not to say we won't evaluate some. So if you look at the
capability of the organization, I would say that we are emerging as a very
capable organization that could potentially integrate something to that
size I described, but there is nothing planned at this time.
MATT WARBURTON - UBS Warburg - Analyst
Okay, thanks very much.
OPERATOR
Chi Chao (ph), Petrie Parkman.
CHI CHAO - Petrie Parkman - Analyst
I'm just wondering -- did the value of the Valero Premcor deal have any
bearing on the terms of the transaction?
JIM O'BRIEN - Ashland Inc. - CEO
As we sat and negotiated this transaction, obviously we looked at a whole
range of valuation techniques -- the cash flow generated from MAP, its
historical performance, what we thought the future performance of the asset
would be, the asset values -- and during the whole period of time that this
project has been negotiated, the values of these assets have been
improving. So the fact that we were able to deliver another $700 million
worth of value I think demonstrates that we took this change in the
marketplace very seriously and negotiated for our shareholders in the vein
that we were trying to achieve a value that reflects the current market. So
as you look at the Premcor deal, you can run the numbers as we have. And I
think after you run the numbers and you make the evaluation, take into
account that Premcor has a high level of synergies which is not available
to Marathon through this deal. And where we stand as far as the complexity
of our assets versus their assets, I think the two deals compare very
favorably.
CHI CHAO - Petrie Parkman - Analyst
Are there any sort of earnout provisions going forward from the deal?
JIM O'BRIEN - Ashland Inc. - CEO
No.
CHI CHAO - Petrie Parkman - Analyst
Final question. It seems like a lot of your focus strategically going
forward is going to be on chemicals. Are you still committed to the
construction business longer-term?
JIM O'BRIEN - Ashland Inc. - CEO
The Construction business is still a very important to us and we're still
very committed to it. It's in a different place of its development. The
Chemicals business has been through its restructuring, it has been through
its reorganization, it has been through its refocusing in the marketplace
and it is performing very, very well. The Construction business is not
performing well. So they are getting the attention necessary to make them
perform better.
CHI CHAO - Petrie Parkman - Analyst
It sounds like you're looking at fixing costs in these (indiscernible)
business, rather than looking at strategic growth opportunities?
JIM O'BRIEN -
Ashland Inc. - CEO
That's correct.
CHI CHAO - Petrie
Parkman - Analyst
Thanks a lot.
OPERATOR
(Operator Instructions) Alex Mitchell, Focus
Asset Management.
ALEX MITCHELL - Focus Asset Management - Analyst
I realize you're still in negotiations with the IRS, but just I guess maybe
by statute or if you could comment -- how long will any restrictions
related to the IRS -- how long could those restrictions last?
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
I think that was a closing agreement not finalized. It's very difficult to
say anything that's meaningful. So rather than say something that's not
meaningful, I think we should not say anything.
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
That was meaningful. Alex?
ALEX MITCHELL - Focus Asset Management - Analyst
Okay. So not even -- you can't even comment on the statute?
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
There's no specifics statutory rule that -- on that point. It's a matter of
-- it's not a statutory rule. There's no bright line (ph) passed. And just
to reiterate, taxes are not the only issue that needs to be taken into
account in this structure in determining the extend to which the Company is
free to use cash to buy back shares or pay an extraordinary dividend.
ALEX MITCHELL - Focus Asset Management - Analyst
Where are the other issues?
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
The stock purchase agreement states that the Company has no intention to
repurchase its shares. That's a very important statement in the transaction
documents, the MAP master agreement rather, and the Company at this time
has no intention and at closing will have no intention.
ALEX MITCHELL - Focus Asset Management - Analyst
So that can be changed?
STEVE GORDON - Cravath, Swaine & Moore - Tax Partner
That will be the intention.
ALEX MITCHELL - Focus Asset Management - Analyst
All right.
OPERATOR
At this time, you have no further questions.
WILLIAM HENDERSON - Ashland Inc. - IR
We want to thank everyone for their participation in the call. If you have
any further questions, please call us in the office. Take care and have a
great day.
JIM O'BRIEN - Ashland Inc. -
CEO
Thank you, everybody.
OPERATOR
Ladies and gentlemen, this does conclude your presentation for today. You
may now disconnect. Have a great day.