Ecolab Delays Champion Deal Closure

Global cleaning and sanitation products maker, Ecolab Inc. (ECL - Analyst Report), postponed the closure of the Champion Technologies deal. The company has extended its agreement with the U.S. Department of Justice (“DOJ”) till February 28, 2013, to resolve certain antitrust-related issues.

The deal was expected to close by the end of 2012. Management at Ecolab, in an early December 2012 press release, had indicated that the transaction might not be completed within the stipulated time frame, or at all. Now, the company is confident that it is capable of solving the remaining issues raised by the DOJ.

The news was somewhat expected, and thus came in as no surprise. This was reflected by the relatively unchanged share price on Friday, Dec 21, 2012. Given Ecolab’s vast experience in successfully acquiring large entities, we believe that the company will be able to overcome these acquisition related glitches.

In October 2012, in an effort to expand its Global Energy Services franchise, Ecolab agreed to acquire privately-owned Champion Technologies and its related company Corsicana Technologies. Earlier the deal was for $2.2 billion, to be paid in cash and stock.

Recently in December 2012, the company altered the agreement. Ecolab will not take over Champion’s downstream process and water solutions business as it will be spun-off to Permian’s stockholders before the buyout. Consequently, the value of the transaction has been revised to $2.16 billion.

The decision to acquire Champion, within a year of the Nalco acquisition (for roughly $8.3 billion) in December 2011, strengthens the company’s energy business in North America. Following the closure, the company is slated to become a giant in the oilfield chemical business.

The acquisition of Champions is expected be accretive to Ecolab’s adjusted earnings per share for 2013 by 12 cents. The accretion is further expected to increase significantly to 50 cents per share by 2016.

St. Paul, Minnesota-based Ecolab serves the food service, food and beverage processing, healthcare, energy, water treatment and hospitality markets in the U.S. as well as internationally. Although we are impressed by Ecolab’s strong international exposure, we remain cautious about currency fluctuations and aggressive competition from the likes of The Clorox Company (CLX - Analyst Report) and Church & Dwight Co. Inc. (CHD - Snapshot Report).

We currently have a ‘Neutral’ recommendation on Ecolab. The stock carries a short-term Zacks #3 Rank (Hold rating).