Deutsche Bank Positive On Ashland Acquisition

Deutsche Bank is out with a research note on Ashland ASH after the company announced a purchase of ISP. It has a Hold rating and a $75 price target on shares. In a note to clients, Deutsche Bank writes, "With leading market positions, a broad global footprint and the ability to leverage Ashland's existing customer base with new technologies, we believe ISP is a good strategic fit for Ashland. Including $200MM of transaction costs, Ashland is investing $3.4B to acquire Ashland of which $2.9B will be financed with debt and $500MM from available cash, Based on D&A of $65MM, intangible asset amortization of $75MM, interest costs of 3.8% (plus $10MM in annual debt amortization), foregone interest income of $1MM and cost synergies of $20MM, we estimate Year 1 EPS accretion of $0.98 (and $1.59 on a cash basis) ex intangible asset amortization), or 20% of 2012E EPS. More importantly, we estimate the acquisition will be value creating (ROIC > WACC of 8%) in Year 6, in line with recent chemical acquisitions. To reflect expected EPS accretion (with synergies offset by integration costs), we are raising our '12E EPS estimate by $0.80 to $5.60, up 47%." Shares of ASH gained $7.29 yesterday to close at $68.34, a gain of 11.95%.