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Specialty chemicals maker Ashland Inc. (ASH - Snapshot Report) is reportedly in discussion with at least seven private equity firms regarding the divestiture of its Water Technologies business unit, according to sources referred by Reuters.  The transaction value of the deal could exceed $1.5 billion.

The private equity firms who are reportedly through to the second round of bidding for the water technologies business unit include Apollo Global Management LLC, Bain Capital LLC, TPG Capital LP, Onex Corp, Advent International Corp, and Rhone Group LLC.

Since late Jul 2013, Ashland’s Board had initiated a review of alternative opportunities for its Water Technologies business unit that would strategically fit the company’s commitment to boost shareholders’ value. The strategic options for the unit also included a potential sale. Citigroup, Inc. (C - Analyst Report) is assisting Ashland in this process.

Ashland completed that review recently and a formal decision to continue with the divestment of the unit is in place now. As of now, Ashland hopes to complete the sale by the first quarter of calendar 2014. The company plans to use the net proceeds from the sale to return capital to shareholders in the form of share repurchases.

The Water Technologies unit’s financial performance showed improvement both on annual and sequential basis in the most recent quarter. Sales from this segment increased 2% year over year and 1.4% sequentially to $441 million in the fourth quarter of fiscal 2013 (ended Sep 30, 2013). The increase is attributable to improved market segmentation, streamlined organizational structure; new product launches and better supply chain execution.

In addition to the decision to sell the Water Technologies business, Ashland also decided to sell its elastomers business that serves the North American replacement tire market. The sale of elastomers business strategically fits with the company’s well-established plan to divest non-core assets and reinvest in higher-margin, specialty chemical businesses where growth opportunities are strong.

Ashland currently carries a Zacks Rank #5 (Strong Sell).

Other companies in the chemical industry worth considering include Methanex Corp. (MEOH - Analyst Report) and Asahi Kasei Corp. . Both of them carry a Zacks Rank #1 (Strong Buy).

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