Canada's wealthy Belzberg brothers dropped their unsolicited $1.7 billion takeover bid for Ashland Oil Inc. yesterday after Ashland agreed to pay them $134.1 million in a "greenmail" transaction.

In a typical greenmail deal, a takeover target agrees to buy back shares from a corporate raider for a price that it does not offer to other shareholders. In return, the raider agrees to drop the takeover bid and usually agrees not to buy additional shares in the target company for a specified period.

In this transaction, Ashland agreed to buy 2.6 million of its shares from the Belzbergs for $51 a share. In return, the three Belzberg brothers -- Samuel, Hyman and William -- withdrew their $60-a-share takeover bid and agreed not to buy any Ashland stock for 10 years.

Ashland stock, which had traded as high as $56 a share last week after the Belzbergs offered to buy the company for $60 a share, closed yesterday at $49.75, down $1.75. Shares of the giant refiner and marketer of oil dropped $3.75 on Monday amid speculation that the Belzbergs would drop their bid.

Ashland announced before the stock market closed yesterday that its board of directors planned to meet last night to give final approval to the deal with the Belzbergs. Ashland also said that management "expects to submit to the board additional proposals, including possible restructuring, which, if adopted, could affect shareholder values."

By selling their stock to Ashland for $51 a share, the Belzbergs should make a healthy profit, because they purchased 1.4 million of their shares at prices ranging from $38.50 to $45.375. They purchased their remaining 1.2 million Ashland shares in a series of deals with Bear, Stearns & Co.

Ashland and the Belzbergs said yesterday that their deal should not be called greenmail. The Belzbergs said it should not be considered greenmail because, as part of the deal, Ashland agreed to undergo a restructuring that would benefit all the shareholders.

Ashland said the deal should not be called greenmail because the firm agreed to purchase the Belzberg's stock for a price below Monday's stock market close of $51.50. In most greenmail deals, companies repurchase shares at a premium price. Ashland also said the deal should not be called greenmail because it did not agree to reimburse the Belzbergs for expenses.

Meanwhile, the Belzbergs said in a statement that they agreed to drop their bid for Ashland because of two major obstacles.

"In light of the uncertainties created by the recently passed antitakeover legislation in Kentucky and the unwillingness of Ashland Oil to enter into a friendly transaction . . . [we] will not proceed with [the] offer to purchase 100 percent of Ashland Oil," they said.

Ashland, the parent of Valvoline Oil Co., is the nation's largest distributor of industrial chemical products. The company also is a leading coal producer and does some oil and gas exploration.