Oil Change- Ashland(ASH) Distributes Remaining Shares Of Valvoline(VVV) To Shareholders

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Although Valvoline’s (VVV) IPO was last September, it was still majority owned by its parent company, Ashland Global Holdings (ASH). Not anymore though. The specialty chemical manufacturer completed Step 2 of its Valvoline spinoff on May 12th by distributing its remaining stake in the company to shareholders. Ashland shareholders as of May 5th, should have received 2.745338 shares of Valvoline for every 1 Ashland share owned. Of course fractional shares were not distributed and instead shareholders will receive some cash instead.

There was no movement within the indices as a result of the transaction since Valvoline will just join Ashland in the S&P MidCap 400. Noble Corp (NE) was booted to the S&P SmallCap 600 and the Celadon Group (CGI) was ousted from all of the indices in the chain reaction from Valvoline’s insertion. Gabelli’s Carolina Jolly doesn’t see much price risk as a result of the spinoff and recommends ‘holding’ Valvoline:

We no longer see dislocation in response to the Valvoline distribution as a large risk, while we do note a volatile quarter due to rapidly rising base oil prices.

We believe that fiscal 2018 provides opportunity for margin improvement and free cash flow. Trading at 14% discount to our estimated fiscal 2018 private market value (PMV) (excluding pension income) of $27 per share we do not see a large enough margin of safety and continue to recommend investors Hold Valvoline (ticker: VVV).

The ‘no ‘dislocation’ has turned out to be the case…at least in its first few days of trading. The truth is there hasn’t been much movement for owners since the IPO and investors holding since that time are basically flat. After the spin, VVV’s CEO Sam Mitchell stated that ‘as both an independent company and an iconic 150-year-old brand, we are well-positioned for growth in the U.S. and around the world’. Considering its been independent for a little while now, it’s not clear how much has really changed although it has already started tackling its pension obligations. Revenues have been roughly flat since 2013 although margins have ticked up in the more recent years. The company may have a rich 150 year history, but what happens 10 or more years out if the automotive industry and its engine continues to change? Ashland shareholders can now decide if they want to stick around with the volatility and find out.

Disclosure: Author holds no position in any stock mentioned.