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Ashland (ASH) Closes Pharmachem Buyout, Expands Portfolio


Ashland Global Holdings Inc. ASH has declared the completion of the earlier announced acquisition of Pharmachem Laboratories, Inc., a leading provider of quality ingredients to wellness and health industries and high-value differentiated products including flavor and fragrance houses. The acquisition is expected to be accretive to Ashland’s earnings in the first year following the deal closure.

Per the terms of agreement, Ashland paid $660 million to Pharmachem in an all-cash transaction. The deal was funded from a combination of cash in hand and proceeds of borrowing under existing facility of securitization. The new three-year senior secured term loan A facility, new five-year senior secured revolving credit facility and new five-year secured term loan facility was used to finance the deal.

Pharmachem is a New Jersey-based manufacturer, develop and supplier of customized and branded fragrance and nutritional products. It has 14 manufacturing facilities in Mexico and the U.S. The company has annual revenues of about $300 million.

According to the Chairman and CEO of Ashland, William A. Wulfsohn, the acquisition of Pharmachem offers substantial growth opportunities in high-margin end markets. It will also help the company to strengthen existing businesses with advanced processing formulation and knowhow.

The acquisition is expected to improve the company’s position in fast-growing nutraceutical end markets. It will also open a new opportunity in flavors and fragrances, and strengthen Ashland’s food ingredient business segment by adding tailored functional solutions. The company is expected to leverage its extensive sales channels, global application labs and technical service networks to accelerate Pharmachem’s growth.

Ashland’s shares have declined 47.9% in the last three months, underperforming the Zacks categorized Chemical-Specialty industry’s loss of 0.6%.

Ashland reported a net income from continuing operations of $102 million or $1.42 per share in the second quarter of fiscal 2017, compared to net income of $87 million or $1.38 in the year-ago period. Barring one-time items, adjusted earnings were $1.71 per share, down 6.6% year over year. However, earnings beat the Zacks Consensus Estimate of $1.61.

Revenues increased 5.8% year over year to $1,320 million, topping the Zacks Consensus Estimate of $1,283 million. The company gained from price improvements and cost management strategies, partly offsetting the adverse impacts of foreign currency translation and higher-than-expected cost of raw materials.

The company witnessed year-over-year growth in sales and volume of Specialty Ingredients. Also sales growth of Performance Materials and volume growth in Composites segments improved margins. However, increasing raw material costs and a strong dollar in the second quarter acted as deterrents. To minimize the combined impact of incremental expense, the Ashland Specialty Ingredient (ASI) team is working to reduce costs and implement price increase.

Ashland Global Holdings Inc. Price and Consensus

Ashland Global Holdings Inc. Price and Consensus | Ashland Global Holdings Inc. Quote

Ashland currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

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