2008/7/11 Ashland

Ashland to acquire Hercules
　　$3.3 billion transaction creates major, global specialty chemicals company

Ashland Inc. and Hercules Inc. today announced that they have entered into a definitive merger agreement under which Ashland would acquire all of the outstanding shares of Hercules for $18.60 per share in cash and 0.093 of a share of Ashland common stock for each share of Hercules common stock. The total transaction value is approximately $3.3 billion, or $23.01 per Hercules share based on Ashland’s July 10 closing stock price and including $0.7 billion of net assumed debt. The transaction, which would create a major, global specialty chemicals company, is expected to close by the end of calendar 2008.

With sales in more than 100 countries, Ashland is a manufacturer of specialty chemicals, a leading distributor of chemicals and plastics, and a provider of automotive lubricants, car-care products and quick-lube services. Hercules is a leader in specialty additives and ingredients that modify the physical properties of water-based systems and is one of the world’s leading suppliers of specialty chemicals to the pulp and paper industry.

Upon the transaction’s close, Ashland will have pro forma combined revenue for the 12 months ended March 31, 2008, of more than $10 billion, including approximately $3.5 billion generated outside North America. For the same period, Ashland generated earnings before interest, taxes, depreciation and amortization (EBITDA) of $365 million excluding certain items, while Hercules reported ongoing EBITDA of $392 million excluding certain items. Specialty chemicals, which on a pro forma basis represents approximately 75 percent of total EBITDA, will serve as Ashland’s primary platform for future growth.

Ashland Chairman and Chief Executive Officer James J. O’Brien said, “The acquisition of Hercules fulfills our objective to become a leading specialty chemicals company. It creates a defined core for Ashland composed of three specialty chemical businesses with strong market positions and promising global growth potential: specialty additives and ingredients, paper and water technologies, and specialty resins. In addition, we expect our financial profile to be enhanced significantly through reduced earnings volatility, improved profitability and stronger cash flow generation.”

Hercules President and Chief Executive Officer Craig A. Rogerson said, “We are enthusiastic about the opportunity to combine Hercules with Ashland. Our companies share proud and similar histories of nearly 100 years of innovation, dedication and service. Hercules shareholders will receive a significant premium over the current trading price for their shares and, through their ownership of Ashland shares, the opportunity to participate in the upside potential of the combined company. We look forward to working with Ashland to bring these two great companies together.”

In specialty additives and ingredients, Hercules’ Aqualon business is one of the most recognized and admired specialty chemical brands in the world and brings Ashland a significant market position in rheology modifiers, which alter the physical properties of water-based systems. These additives are used across a wide range of industries to make everything from adhesives and paints to foods, pharmaceuticals and personal care products. Nearly all of Aqualon’s additive products are water soluble polymers derived from renewable materials. The combined company generates, on a pro forma basis, approximately one-third of EBITDA from bio-based or renewable chemistries.

“We will combine the paper and water businesses of each company to create one global paper and water technologies business with annual revenue of $2 billion,” said O’Brien. “In particular, Hercules’ leadership position in pulp and paper technologies bolsters our participation in one of the world’s largest water treatment markets. The combined businesses will provide the scale to leverage opportunities in other key water treatment markets including municipal, industrial and marine.

“The third business within our new core ? specialty resins ? is one where Ashland has long enjoyed a strong reputation for innovation and service. A broader international footprint will offer the specialty resins business expanded global growth opportunities in key building and construction markets, including infrastructure and wind energy. In addition, our Distribution and Valvoline businesses provide complementary capabilities and share similar markets with the specialty chemical businesses,” said O’Brien.

Ashland expects to realize annualized run-rate cost savings of at least $50 million by the third year following the transaction’s close by eliminating redundancies and capturing operational efficiencies. In the first year following the transaction’s close, while the combination is modestly dilutive to earnings per share on a reported basis, it is expected to be significantly accretive to Ashland’s earnings per share excluding merger costs and noncash depreciation and amortization charges resulting from the transaction.

O’Brien continued, “We are extremely impressed with the quality of the Hercules people and we look forward to welcoming them into the Ashland family. Our companies share a common desire to live up to our own high expectations, and those of our customers, shareholders and the communities in which we operate. We are also very pleased that John Panichella, president of Hercules’ Aqualon Group, and Paul Raymond, president of Hercules’ Paper Technologies and Ventures Group, have agreed to join Ashland after the close of the transaction, reporting directly to me. In addition, we expect to maintain a significant presence in Wilmington, Del., where Hercules is headquartered.

“An integration team with members from both organizations will determine how best to utilize the strengths and scale of the combined company worldwide. We will work with the Hercules team to ensure a smooth transition,” concluded O’Brien.

Ashland Inc. (NYSE: ASH), a diversified, global chemical company, provides quality products, services and solutions to customers in more than 100 countries. A FORTUNE 500 company, it operates through four divisions: Ashland Performance Materials, Ashland Distribution, Valvoline and Ashland Water Technologies. To learn more about Ashland, visit www.ashland.com.

Hercules manufactures and markets chemical specialties globally for making a variety of products for home, office and industrial markets. For more information, visit the company’s website at www.herc.com.

Ashland Products:

Ashland Distribution is a leading distributor of chemicals, plastics, composite materials and environmental services in North America, and thermoplastics in Europe. Our people, processes, systems, distribution network and strategic relationships with raw material producers are focused on one thing - satisfying your needs and making sure that every order is on time, accurate and complete.

Ashland Performance Materials
We are a worldwide manufacturer and supplier of specialty chemicals and customized services to the building and construction, packaging and converting, transportation, marine and metal casting industries. We are a technology leader in metal casting consumables and design services; unsaturated polyester and vinyl ester resins and gelcoats; and high-performance adhesives and specialty resins.

Ashland Water Technologies
Our Drew Industrial and Environmental and Process Solutions business units supply chemical and non-chemical water treatment solutions for industrial, commercial and institutional facilities. Our Drew Marine business provides boiler and cooling water treatments, fuel treatments, welding, refrigeration and sealing products, and fire, safety and rescue products for the merchant marine industry.

Valvoline
Serving more than 100 countries around the globe, Valvoline is a leading marketer, distributor and producer of quality branded automotive and industrial products and services. Products include automotive lubricants including MaxLife, the first motor oil specifically formulated for higher-mileage vehicles; transmission fluids; gear oils; hydraulic lubricants; automotive chemicals; specialty products; greases, and cooling system products.

Hercules

Founded in 1912, Hercules Incorporated manufactures and markets chemical specialties globally used in making a variety of products for home, office, and industrial markets.

Our portfolio of businesses consists of two major operating segments: Aqualon Group and the Paper Technologies and Ventures Group.

Aqualon Group

Aqualon is a world leader in products that modify the physical properties of aqueous, or water-based, systems and the world's only pale wood rosin derivatives producer. Most of Aqualon's products are derived from renewable natural raw materials.

The Aqualon Group focuses its resources on three key growth markets:

Paper Technologies and Ventures Group

The Paper Technologies portion of this group is dedicated to providing superior products and services for the paper industry.

The Ventures portion is focused on expanding our businesses in four markets:

1950s
Expansion and Metamorphosis
・ Hercules finds new and expanding markets in petrochemicals.
・ Military and civilian space programs provide new growth opportunities for Hercules' chemical propulsion products.

1960s
Managing New Constraints
・ Hercules expands globally.
・ Large-scale investments increase capacity for making petrochemical commodities and fabricated materials;
　　Hercules becomes the leading producer of dimethyl terephthalate (DMT)
　　and polypropylene for resins, fibers and film.

1970s
Reorientation
・ Hercules moves away from petrochemical commodities toward specialty chemicals and aerospace products.
・ Environmental movement brings not only compliance challenges, but also new opportunities to develop products
　and technologies for solid waste treatment.