1
Filed
by Ashland Inc.
Pursuant
to Rule 425
Under
the Securities Act of 1933
Subject
Company
Hercules
Incorporated
Commission
File Number 1-00496
Hercules
Inc. Acquisition
Conference Call
July 11, 2008
Conference Call
July 11, 2008
Ashland
Inc. Participants
James
J. O'Brien, Chairman and Chief Executive Officer
Lamar
M. Chambers, Sr. Vice President and Chief Financial Officer
Eric
N. Boni, Director, Investor Relations
Hercules
Inc. Participants
Craig
A. Rogerson, President and Chief Executive Officer
2
Forward-Looking
Statements
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 and Hercules’ current expectations about the acquisition
of Hercules. Although Ashland and Hercules believe their expectations are based on what management believes to be reasonable assumptions,
they cannot assure the expectations reflected in this document will be achieved as they are subject to risks and uncertainties that are difficult to
predict and may be outside of Ashland’s and Hercules’ control. These risks and uncertainties may cause actual results to differ materially from
those stated, projected or implied. Such risks and uncertainties include the possibility that the benefits anticipated from the Hercules transaction
will not be fully realized; the possibility the transaction may not close, including as a result of failure to obtain the approval of Hercules
stockholders; the possibility that financing may not be available on the terms committed; and other risks that are described in filings made by
Ashland and Hercules with the Securities and Exchange Commission (SEC) in connection with the proposed transaction. Other factors,
uncertainties and risks affecting Ashland and Hercules are contained in each company’s periodic filings made with the Securities and Exchange
Commission, including Ashland’s Form 10-K for the fiscal year ended Sept. 30, 2007, Ashland’s Form 10-Q for the quarter ended March 31, 2008,
Hercules’ Form 10-K for the fiscal year ended Dec. 31, 2007, and Hercules’ Form 10-Q for the quarter ended March 31, 2008 filed with the SEC
and available on Ashland’s Investor Relations website at www.ashland.com/investors or Hercules’ website at www.herc.com or the SEC’s website
at www.sec.gov. Ashland and Hercules undertake 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.
Securities Exchange Act of 1934. These statements include those that refer to Ashland’s and Hercules’ current expectations about the acquisition
of Hercules. Although Ashland and Hercules believe their expectations are based on what management believes to be reasonable assumptions,
they cannot assure the expectations reflected in this document will be achieved as they are subject to risks and uncertainties that are difficult to
predict and may be outside of Ashland’s and Hercules’ control. These risks and uncertainties may cause actual results to differ materially from
those stated, projected or implied. Such risks and uncertainties include the possibility that the benefits anticipated from the Hercules transaction
will not be fully realized; the possibility the transaction may not close, including as a result of failure to obtain the approval of Hercules
stockholders; the possibility that financing may not be available on the terms committed; and other risks that are described in filings made by
Ashland and Hercules with the Securities and Exchange Commission (SEC) in connection with the proposed transaction. Other factors,
uncertainties and risks affecting Ashland and Hercules are contained in each company’s periodic filings made with the Securities and Exchange
Commission, including Ashland’s Form 10-K for the fiscal year ended Sept. 30, 2007, Ashland’s Form 10-Q for the quarter ended March 31, 2008,
Hercules’ Form 10-K for the fiscal year ended Dec. 31, 2007, and Hercules’ Form 10-Q for the quarter ended March 31, 2008 filed with the SEC
and available on Ashland’s Investor Relations website at www.ashland.com/investors or Hercules’ website at www.herc.com or the SEC’s website
at www.sec.gov. Ashland and Hercules undertake 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
In
connection with the proposed transaction, Ashland will file a registration
statement on Form S-4, which will include a preliminary
proxy statement/prospectus, with the SEC. Ashland and Hercules intend to mail a definitive proxy statement/prospectus to Hercules’
stockholders containing information regarding the proposed transaction. Investors and security holders are urged to read the
registration statement on Form S-4 and the related preliminary and definitive proxy/prospectus when they become available because
they will contain important information about the proposed transaction. Investors and security holders may obtain free copies of
these documents (when they are available) and other documents filed with the SEC at the SEC’s web site at www.sec.gov and by
contacting Ashland Investor Relations at (859) 815-4454 or Hercules Investor Relations at (302) 594-7151. Investors and security
holders may obtain free copies of the documents filed with the SEC on Ashland’s Investor Relations website at
www.ashland.com/investors or Hercules’ website at www.herc.com or the SEC’s website at www.sec.gov.
proxy statement/prospectus, with the SEC. Ashland and Hercules intend to mail a definitive proxy statement/prospectus to Hercules’
stockholders containing information regarding the proposed transaction. Investors and security holders are urged to read the
registration statement on Form S-4 and the related preliminary and definitive proxy/prospectus when they become available because
they will contain important information about the proposed transaction. Investors and security holders may obtain free copies of
these documents (when they are available) and other documents filed with the SEC at the SEC’s web site at www.sec.gov and by
contacting Ashland Investor Relations at (859) 815-4454 or Hercules Investor Relations at (302) 594-7151. Investors and security
holders may obtain free copies of the documents filed with the SEC on Ashland’s Investor Relations website at
www.ashland.com/investors or Hercules’ website at www.herc.com or the SEC’s website at www.sec.gov.
Hercules and its
directors and executive officers may be deemed participants in the solicitation
of proxies from the stockholders of
Hercules in connection with the proposed transaction. Information regarding the special interests of these directors and executive
officers in the proposed transaction will be included in the proxy statement/prospectus described above. Additional information
regarding the directors and executive officers of Hercules is also included in Hercules’ proxy statement for its 2008 Annual Meeting
of Stockholders, which was filed with the SEC on March 19, 2008. These documents are available free of charge at the SEC’s web
site at www.sec.gov and from Investor Relations at Ashland and Hercules as described above.
Hercules in connection with the proposed transaction. Information regarding the special interests of these directors and executive
officers in the proposed transaction will be included in the proxy statement/prospectus described above. Additional information
regarding the directors and executive officers of Hercules is also included in Hercules’ proxy statement for its 2008 Annual Meeting
of Stockholders, which was filed with the SEC on March 19, 2008. These documents are available free of charge at the SEC’s web
site at www.sec.gov and from Investor Relations at Ashland and Hercules as described above.
3
Agenda
• Transaction
Overview
– Terms
– Strategic
Benefits
• Business
Descriptions
– Ashland
– Hercules
• Financing
• Synergies
• Integration
Plan
• Next
Steps
4
Key
Terms
• Hercules
shareholders to receive consideration of:
– $18.60
per Hercules share in cash
– 0.093
of a share of Ashland stock
• Value
of $23.01 per share, based upon Ashland closing
price on July 10
price on July 10
– 38-percent
premium to Hercules' closing stock price on July 10
– 26-percent
premium to Hercules' 30-day average stock price
• Total
transaction value of $3.3 billion
– Includes
$2.6 billion equity value, plus net assumed debt
of $0.7 billion
of $0.7 billion
• Expected
to close by end of calendar 2008
5
• Creates
a major, global specialty chemicals company
– ~75
percent of estimated pro forma* EBITDA derived from specialty
chemicals
– More
than $10 billion in pro forma revenue
– Boosts
pro forma revenue from outside North America to approximately
$3.5 billion
$3.5 billion
• Significantly
enhances focus and expands scale
in three specialty chemical businesses
in three specialty chemical businesses
– Specialty
additives and ingredients, paper and water technologies,
and specialty resins
and specialty resins
• Creates
leadership position in attractive and growing
renewable/sustainable chemistries
renewable/sustainable chemistries
– Derives
approximately one-third of estimated pro forma EBITDA
from bio-based chemistries
from bio-based chemistries
*
For the 12 months ended March 31, 2008. Sales & Operating Revenue includes
intersegment sales.
EBITDA excludes Unallocated and Other.
EBITDA excludes Unallocated and Other.
Drives
stronger, more profitable
and less cyclical earnings
and less cyclical earnings
Strategic
Benefits
6
• Founded
in 1924; sales in 100 countries
• Number
of employees: ~11,700
• A
leading manufacturer of composite
polymers, adhesives, metal casting
consumables, and process and utility water
treatments
polymers, adhesives, metal casting
consumables, and process and utility water
treatments
• A
leading North American distributor of
chemicals, plastics and composite materials
chemicals, plastics and composite materials
• Marketer
of premium-branded lubricants,
automotive chemicals and quick-lube services
automotive chemicals and quick-lube services
Business
Description
Ashland
Distribution
51%
Distribution
51%
Ashland
Distribution
51%
Distribution
51%
Performance
Materials
19%
Materials
19%
Performance
Materials
19%
Materials
19%
Valvoline
20%
20%
Sales
& Operating Revenue*: $7.9 billion
Water
Technologies
Water
Technologies
EBITDA*:
$365 million
Ashland
Distribution
16%
Distribution
16%
Ashland
Distribution
16%
Distribution
16%
Performance
Materials
34%
Materials
34%
Performance
Materials
34%
Materials
34%
Valvoline
39%
39%
Water
Technologies
Water
Technologies
10%
10%
11%
11%
*
For the 12 months ended March 31, 2008. Sales & Operating Revenue includes
intersegment sales.
EBITDA in the pie chart graph excludes Unallocated and Other.
EBITDA in the pie chart graph excludes Unallocated and Other.
Latin
America/
Other
America/
Other
Latin
America/
Other
America/
Other
3%
3%
Asia/Pacific
Asia/Pacific
North
America
71%
America
71%
North
America
71%
America
71%
Europe
21%
21%
Europe
21%
21%
5%
5%
Ashland
Overview
7
• Founded
in 1912 as a spinoff from DuPont
• Number
of employees: ~4,700
• Leading
supplier of functional, process
and water treatment chemical programs
for the pulp and paper industry
and water treatment chemical programs
for the pulp and paper industry
• World
leader in products that manage
the flow characteristics of water-based
products
the flow characteristics of water-based
products
Business
Description
Paper
Technologies
& Ventures
53%
Technologies
& Ventures
53%
Paper
Technologies
& Ventures
53%
Technologies
& Ventures
53%
Aqualon47%
Aqualon47%
Sales
& Operating Revenue*: $2.2 billion
EBITDA*:
$392 million
Aqualon
61%
61%
Aqualon
61%
61%
EBITDA
Margin
24%
24%
EBITDA
Margin
24%
24%
Paper
Technologies
& Ventures
39%
Technologies
& Ventures
39%
*
For the 12 months ended March 31, 2008, as previously reported by Hercules
Inc.
EBITDA in the pie chart graph excludes Corporate Items.
EBITDA in the pie chart graph excludes Corporate Items.
Latin
America/
Other
America/
Other
Latin
America/
Other
America/
Other
6%
6%
Asia/Pacific
Asia/Pacific
North
America
46%
America
46%
North
America
46%
America
46%
Europe
36%
36%
Europe
36%
36%
12%
12%
EBITDA
Margin
13%
Margin
13%
Hercules
Overview
8
Water
10%
Performance
Materials
Materials
19%
Distribution
Distribution
51%
51%
Valvoline
20%
EBITDA
Performance
Materials
Materials
34%
Distribution
Distribution
16%
16%
Water
11%
Valvoline
39%
Specialty
Chemicals
29%
of Ashland revenue
45%
of Ashland EBITDA
Current
Ashland
Specialty
Chemicals
45%
of Ashland revenue
72%
of Ashland EBITDA
EBITDA
Distribution
Distribution
40%
40%
Water
&
Hercules
Paper
20%
Aqualon
- 10%
Valvoline
15%
Performance
Materials
Materials
17%
Distribution
- 8%
Distribution
- 8%
Valvoline
20%
Performance
Materials - 15%
Materials - 15%
Water
&
Hercules
Paper
25%
Aqualon
30%
Estimated
Pro Forma
Sales
&
Operating
Revenue
Operating
Revenue
Sales
&
Operating
Revenue
Operating
Revenue
*
For the 12 months ended March 31, 2008. Sales & Operating Revenue includes
intersegment sales.
Revenue
and Profit Profile*
9
~75
percent
of
global EBITDA
derived
from
specialty
chemicals
Chemistries
Water
Treatment
Markets
Markets
Water
Treatment
Markets
Markets
Transportation
Markets
Markets
Transportation
Markets
Markets
Building
&
Construction
Markets
Construction
Markets
Building
&
Construction
Markets
Construction
Markets
Regulated
Markets
Regulated
Markets
Light
Vehicle
Vehicle
Recreational
Marine
Marine
Pulp
&
Paper
Paper
Industrial
Municipal
Marine
Paint
&
Coatings
Coatings
Resid.
/
Comm.
Bldgs.
Comm.
Bldgs.
Wind
Energy
Food
Pharma-
ceuticals
ceuticals
Personal
Care
Care
Extraction
Specialty
Chemicals Core
10
Hercules
Ashland
· Broad
product offering
encompassing the entire
paper-making process
encompassing the entire
paper-making process
· Support
by the largest
technical sales force
in the industry
technical sales force
in the industry
· Satisfies
customers’
preference toward fewer
suppliers and suppliers
with a productivity
orientation
preference toward fewer
suppliers and suppliers
with a productivity
orientation
· Broad
process and
functional capabilities
to address critical
customer needs
functional capabilities
to address critical
customer needs
· Backward
integrated on
key functional additives
key functional additives
· Specialized
sales
channel
channel
· Expertise
in process
and utility water
treatment
and utility water
treatment
· Backward
integrated on
key process chemicals
key process chemicals
· Key
product formulation
and application
capabilities
and application
capabilities
This
acquisition creates a differentiated offering
within the paper vertical.
within the paper vertical.
11
Financing
• $2.7
billion new financing
– Commitments
from Bank of America and Scotia Capital
– $2.2
billion expected to be drawn at closing
• 10.5
million new common shares issued at closing
• Estimated
Debt/EBITDA ratio at close:
3.2x to 3.3x
– Target:
1.5x to 2.0x
• Goal
of attaining investment-grade credit rating
in two to four years
in two to four years
12
Financial
Benefits
• At
least $50 million annual run-rate cost savings
by Year 3
by Year 3
– Overhead
redundancies (selling and administrative)
– Integrated
technology platform
– Raw
material procurement
– Freight
and logistics
• Modestly
dilutive to reported EPS in Year 1
• Significantly
accretive to EPS in Year 1
excluding merger costs and noncash depreciation
and amortization charges related to the transaction
excluding merger costs and noncash depreciation
and amortization charges related to the transaction
13
Timeline
and Next Steps
• Hercules
shareholder approval
• Receipt
of regulatory approvals
• Other
customary closing conditions
• Anticipated
close by end of calendar 2008
14
Questions?
15
Appendix
Ashland Performance
Materials: A global leader in specialty chemicals Revenue*: $1.6 billion
Business Overview Customers
Auto manufacturers, foundries, pipe and tank fabricators, boat builders, wide
and narrow web printers Products/
Services Composite Polymers
Unsaturated polyester resins Vinyl ester resins Gelcoats Casting Solutions
Foundry binder resins aids Chemicals Sleeves and filters Design services
Specialty Polymers & Adhesives Pressure-sensitive adhesives Structural
adhesives Specialty resins Markets Transportation, construction, marine,
packaging and converting Revenue*: $1.6
billion By Market Trans-portation 25% Transportation 25% Ind. Constr. 25%
Res. Constr. 15% Infra- structure 16% Pkg. & Converting
- 9% Marine - 10% By Geography Latin America/ Other - 7%
Asia/ Pacific - 8% Europe 33% North America
52%
Ashland Distribution:
A leading North American chemical and plastics distributor Business Overview
Customers Diversified
customer base Products/
Services More than 7,000
packaged and bulk chemicals, solvents, plastics and additives Comprehensive,
hazardous and nonhazardous waste-management solutions in
North America Markets Construction Transportation Paint and
coatings Chemical manufacturing Retail consumer Medical Personal care Marine
Revenue*: $4.1
billion By Market Marine - 4% Personal Care - 6% Medical - 6% Construction 25%
Other 15% Trans- portation 15% Paint & Coatings - 11% By Product
Line Chemicals 44% Plastics 42% Composites
12% Environmen-tal Services/ Other - 2%
* For the 12 months ended March 31, 2008.
Valvoline: A
leading worldwide marketer of premium-branded automotive lubricants and
chemicals Revenue*: $1.6 billion By Market Channel DIFM: Installer Channel - 30%
Specialty/ Other - 2% Valvoline Int'l 22% Do-It-Yourself 35%
Do-It-For-Me 41% DIFM: Valvoline Instant Oil Change - 1% By Product
Line Antifreeze - 6% Chemicals - 6% Appearance products - 4% Filters - 3% * For
the 12 months ended March 31, 2008. Lubricants 81% Business Overview Customers
Retail auto parts stores
and mass merchandisers who sell to consumers; installers, such as car dealers
and quick lubes; distributors Products/ Services
Valvoline® lubricants and
automotive chemicals MaxLife® lubricants for high-mileage vehicles SynPower®
synthetic motor oil Eagle One® and Car Brite® appearance products Zerex®
antifreeze Valvoline Instant Oil Change® service Market
Channels Do-It-Yourself
(DIY) Do-It-For-Me (DIFM) Valvoline International
Ashland Water
Technologies: A major global supplier to the water treatment industry Revenue*:
$0.8 billion By Segment Marine 16% Industrial 41% E&PS 43% Europe 47% North
America 32% Asia/ Pacific 16% Latin America/Other - 5% By Region *
For the 12 months ended March 31, 2008. Business Overview Customers/Markets
Automotive Municipal waste water treatment Pulp and paper processing Paint and
coatings Adhesives Printing inks Commercial and institutional building
management Merchant marine Products/Services Chemicals and consulting services
for utility water treatment Process water treatments Technical products and
shipboard services for the merchant marine and cruise ship
industry
Business Overview Customers Primarily
diversified multinational paper manufacturers Products Process chemicals
Microbial control Contaminant control Pulping aids Retention aids Functional
chemicals Sizing Wet strength Ventures: Pulp and bio-refining Water management
Synthetic lubricants Adhesives Markets Pulp and paper Paper Technologies
and Ventures: A global leader in paper chemicals Revenue*: $1.2 billion By
Product Process Chemicals 24% Functional Chemicals 55% Ventures 21% Asia-Pacific
8% Latin America/ Other - 6% North America 55% Europe 31% By Geography * For the
12 months ended March 31, 2008.
Aqualon Overview: A
global leader in managing rheology of water-based systems Business Overview Customers Diversified,
global customer base Products Broad product line based on renewable resources:
Water soluble polymers (cellulose derivatives & guar) Pinova products – wood
rosin derivatives Markets Water-based paints Paper coatings Construction
Oilfield (chemicals and drilling muds) Regulated markets Personal care Food
Pharmaceuticals Revenue*: $1.0
billion By Product Regulated Industries* 25% Coatings & Construction 48%
Energy & Solutions 27% By Geography Latin America/Other - 6% Asia-Pacific
15% North America 38% Europe 41% * For the 12 months ended March 31,
2008.
22
(in
millions)
|
Ashland
Inc.
|
Trailing
12 Months Ended March 31, 2008 |
||
|
Operating
income
|
$
|
215)
|
|
|
Non-North
American entities
reporting lag |
(5)
|
||
|
Due
diligence related
to potential growth opportunities |
8)
|
||
|
Depreciation
and amortization
|
147)
|
||
|
EBITDA
|
$
|
365)
|
|
Regulation
G:
Reconciliation of Operating Income to EBITDA
Reconciliation of Operating Income to EBITDA
23
(in
millions)
*
Effective Jan. 1, 2008, Hercules elected to change its method of accounting for
its qualified defined-benefit pension
plans in the United States and United Kingdom. This change in accounting method increased income in this caption
by $42 million during this 12-month period.
plans in the United States and United Kingdom. This change in accounting method increased income in this caption
by $42 million during this 12-month period.
Regulation
G: Reconciliation
of Income Before Income
Taxes, Minority Interest and Equity (Loss) Income to EBITDA
Taxes, Minority Interest and Equity (Loss) Income to EBITDA