Ecolab, Nalco to merge in $8.1-bn deal

US cleaning products giant Ecolab Inc today said that it will buy  industrial water treatment company Nalco Holding Co, in a deal valued at around $8.1 billion including debt.

Naperville, Illinois-based Nalco, formed through the 1928 merger of Chicago Chemical Company and the Aluminum Sales Corporation, is the world's largest maker of chemicals used in water treatment and pollution control.

Its best-known product, Corexit 9500, an oil dispersant, was widely used to help clean up BP's oil spill in the Gulf of Mexico last year. The company operates in 70,000 locations in more than 130 countries. It reported net income of $196.2 million on revenues of $4.3 billion last year.

If the acquisition goes through, Nalco will be changing ownership for the third time in its 83-year old history, having been acquired by Suez of France in 1999 and later in 2003 by a consortium of buyout firms consisting of the Blackstone Group, Apollo Management and Goldman Sachs's private equity arm.

Nalco returned to the New York Stock Exchange in late 2004 under its present name.

Under the terms of the transaction, which is expected to close in the fourth quarter, Nalco shareholders will have the option to receive either 0.7005 shares of Ecolab common stock or $38.80 per Nalco share in cash without interest, per share of Nalco common stock, a 34-per cent premium to Nalco's closing stock price on 19 July 2011, the last trading day prior to the announcement of the agreement.

The overall mix of consideration paid to Nalco shareholders will be approximately 30 per cent cash and 70 per cent stock.

In order to achieve this mix of consideration, the agreement provides for adjustments to and reallocation of cash and stock elections made by Nalco shareholders, as well as the allocation of Nalco shares owned by shareholders who fail to make an election, to achieve the overall 30 per cent / 70 per cent cash/stock consideration mix. The stock portion of the purchase price is expected to be tax-free to Nalco shareholders.

Based on the closing price of Ecolab common stock on July 19, 2011, the aggregate consideration paid on a fully-diluted basis is $38.80 per Nalco share, or $5.4 billion. The consideration represents a 34 per cent premium to Nalco's closing stock price on 19 July 2011 the last trading day prior to the announcement of the agreement.

Ecolab will issue approximately 68.9 million shares of Ecolab stock and pay approximately $1.6 billion in cash to Nalco shareholders. This represents a fully-diluted offer value for Nalco's equity of $5.4 billion and, inclusive of $2.7 billion in Nalco net debt, a total transaction value of $8.1 billion, said Ecolab in a statement.

Ecolab said that it has identified cost synergies of approximately $150 million and the combined company will have approximately $1.5 billion revenue in high growth emerging markets.

"Through our participation in the water sector and our strategic planning work, we identified water management as a key future growth segment for us given its growth characteristics and importance to our customers," said Douglas Baker, Jr., Ecolab's chairman, president and CEO. "This merger is a strong and vital step in broadening our business platform and enhancing our global growth opportunities."

With more than $6 billion in global sales, Ecolab, a Fortune 500 company, provides cleaning, sanitising and infection control services to the food service, hospitality, healthcare and other industries. It also sells products that are used in the vehicle-wash industry and the commercial laundry business.

Erik Fyrwald, Nalco's chairman, president and chief executive officer, said, "This is a compelling strategic transaction that delivers an immediate premium to our shareholders and the opportunity to participate in the significant upside potential of the combined organization.

Founded in 1923 by Merritt Osborn as Economics Laboratory, the St. Paul, Minnesota-based company first product was Absorbit, a product designed for cleaning carpets in rooms of luxury hotels.

The company went public in 1957 and changed its name to Ecolab in 1986.

Ecolab operates more than 50 manufacturing and distribution centres worldwide and has invested around $400 million in research and development since the past five years. It currently holds more than 3,700 patents.

The company, which employs around 26,500 people, has customers in more than 160 countries across North America, Europe, Asia Pacific, Latin America, the Middle East and Africa.