Acquisitions and Dispositions

3 Months Ended

Mar. 31, 2013

Acquisitions and Dispositions

Acquisitions and Dispositions

3.       Acquisitions and Dispositions

Champion acquisition

In October 2012, the company entered into an agreement and plan of merger to acquire Champion. Based in Houston, Texas, Champion is a global energy specialty products and services company delivering product and service-based offerings to the oil and gas industry.

In December 2012, the company amended the acquisition agreement, such that Champion’s downstream business would not be acquired by the company. Further, in April 2013, subsequent to the close of the company’s first quarter, the company entered into a consent agreement with the U.S. Department of Justice requiring Ecolab to take certain steps designed to ensure continued independent competition utilizing Champion technology for deepwater Gulf of Mexico energy services. The amendment and consent agreement discussed above do not significantly impact the value of the acquisition transaction. On April 10, 2013, the company completed its acquisition of Champion. Champion’s sales for the business being acquired by the company were approximately $1.3 billion in 2012. The business will become part of the company’s Global Energy reportable segment starting in the second quarter of 2013.

Pursuant to the terms of the acquisition agreement, after adjustments for assumed debt and other adjustments, the company paid consideration of approximately $2.0 billion (valued based on Ecolab’s closing share price on April 10, 2013), consisting of $1.4 billion in cash and 6.6 million shares of Ecolab common stock. The company deposited approximately $100 million of the consideration in the form of shares of Ecolab common stock in an escrow fund to satisfy adjustments to the consideration and indemnification obligations of the acquired entity’s stockholders (including covenant obligations) for a period of two years following the effective time of the acquisition. Additionally, except under limited circumstances, the company will be required to pay an additional amount in cash, up to $100 million in the aggregate, equal to 50% of the incremental federal tax on the merger consideration as a result of increases in applicable capital gains and investment taxes after December 31, 2012. Such additional payment will be due on January 31, 2014, and will be based on 2013 tax rates as in effect on January 1, 2014.

The company funded the initial cash component of the merger consideration through a $900 million unsecured term loan, initiated in April 2013, the proceeds from the December 2012 issuance of $500 million of 1.450% senior notes due 2017 and commercial paper borrowings backed by its syndicated credit facility. The Champion acquisition is not material to the company’s consolidated financial statements; therefore, pro forma financial information will not be presented. Based on the timing of the close of the transaction, it is impractical to include a preliminary purchase price allocation.

Other significant acquisition activity

2013 Activity

In January 2013, the company completed the acquisition of Mexico-based Quimiproductos S.A. de C.V. (“Quimiproductos”), a wholly-owned subsidiary of Fomento Economico Mexicano, S.A.B. de C.V. Quimiproductos produces and supplies cleaning, sanitizing and water treatment goods and services to breweries and beverage companies located in Central and South America. Annual sales of the business are approximately $43 million. As shown in the table on the following page, approximately $8 million of the purchase price was placed in an escrow account for indemnification purposes related to general representations and warranties. The business became part of the company’s Global Industrial reportable segment during the first quarter of 2013. The purchase price allocation is preliminary, pending completion of the fair value determination of the acquired assets and liabilities, including valuation of the acquired intangibles.

2012 Activity

In December 2011, subsequent to the company’s fiscal year end for international operations, the company completed the acquisition of Esoform, an independent Italian healthcare manufacturer focused on infection prevention and personal care. Based outside of Venice, Italy, with annual sales of approximately $12 million, the business is included in the company’s Global Institutional reportable segment. Further information related to the recast of the company’s reportable segments is included in Notes 6 and 13.

Also in December 2011, the company completed the acquisition of the InsetCenter pest elimination business in Brazil. Annual sales of the acquired business are approximately $6 million. The business operations and staff have been integrated with the company’s existing Brazil Pest Elimination business and is included in the company’s Other reportable segment. Further information related to the recast of the company’s reportable segments is included in Notes 6 and 13.

Other significant acquisition summary

Completed acquisitions during the first quarter of 2013 and all of 2012 were not material to the company’s consolidated financial statements; therefore pro forma financial information is not presented. The aggregate purchase price of acquisitions has been reduced for any cash or cash equivalents acquired with the acquisitions. As shown in the table below, during the first quarter of 2013, the remaining $13 million escrow balance related to the O.R. Solutions Inc. acquisition was paid to the seller. The 2013 contingent consideration activity relates to payments on legacy Nalco acquisitions. The 2012 contingent consideration relates to immaterial acquisitions completed during 2012. Based upon purchase price allocations, the components of the aggregate purchase prices of completed acquisitions during the first quarter 2013 and 2012 are shown in the following table.

	First Quarter Ended
	March 31
(millions)	2013			2012
Net tangible assets acquired	$	(4.2	)	$	1.7
Identifiable intangible assets
Customer relationships	47.2			2.3
Trademarks	0.1			0.1
Patents	—			2.8
Other technology	—			0.2
Total intangible assets	47.3			5.4
Goodwill	33.3			14.2
Total aggregate purchase price	76.4			21.3
Contingent consideration	9.8			(2.6		)
Liability for indemnification	5.0			(0.8		)
Net cash paid for acquisitions	$	91.2		$	17.9

The weighted average useful lives of identifiable intangible assets acquired in the above table during the three months of 2013 and 2012 were 13 and 12 years, respectively.

Dispositions

There were no significant business disposals during the first quarter of 2013 or 2012.