IPO Preview: Valvoline International, Inc.

In its final step in the process of splitting into two, Ashland, Inc. announced the spin-off of Valvoline, Inc. (Pending:VVV) into its own publicly traded company. The company filed its S-1/A with the Securities and Exchange Commission on Sept. 12, 2016, setting the terms for the IPO that is scheduled for Sept. 23, 2016. Valvoline will offer 30 million shares with an additional over-allotment option of 4.5 million shares. Valvoline estimates net proceeds of approximately $605 million (or approximately $697.0 million if the underwriters' over-allotment option is exercised in full). The price range is $20 to $23 per share.

Immediately prior to the closing of the offering, Valvoline plans to borrow approximately $980M and transfer the proceeds to Ashland. Valvoline will then use the net proceeds from the offering to reduce its loans and estimate that there will be no more than approximately $375.0 million in loans after using its net proceeds.

Upon completion of this offering, Valvoline will have 200,000,000 shares outstanding, (204,500,000 shares if the underwriters exercise their over-allotment option in full). Of those 200,000,00 shares, Ashland will own 170,000,000 shares, representing 85% of common stock outstanding. After the completion of the offering, Ashland Inc. will continue to control a majority of the voting power of Valvoline's common stock. After the 180-day lockup period, Ashland plans to effect a tax-free spin-off of its remaining stake in Valvoline.

Underwriters for the offer include: Bank of America Merrill Lynch, Citigroup (NYSE:C), Morgan Stanley (NYSE:MS), Deutsche Bank Securities, Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM).

Business summary

Founded in 1866 and headquartered in Lexington, Kentucky, Valvoline has 1,050 franchises and company-owned lubricant shops. It also sells its products through more than 30,000 retail stores in the U.S. and Canada, to installer customers with more than 12,000 locations, and to people in 140 countries around the world. It is the second-largest lube-store operator in the United States.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CSTR over the next 72 hours.

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