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 its offerings to the oil and gas industry.

In November 2012, the company amended the acquisition agreement to provide that Champion’s downstream business would not be acquired by the company. Further, in April 2013, the company entered into a consent agreement with the U.S. Department of Justice under which Ecolab took certain steps designed to ensure continued independent competition utilizing Champion technology for certain U.S. deepwater Gulf of Mexico products and 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 acquired by the company were approximately $1.3 billion in 2012. The business became part of the company’s Global Energy reportable segment in the second quarter of 2013.

Pursuant to the terms of the acquisition agreement, the consideration transferred at closing to acquire all of Champion’s stock was as follows:

(millions, except per share)

Cash consideration	$	1,429.9
Stock consideration
Ecolab shares issued to Champion shareholders	6.6
Ecolab’s closing stock price on April 10, 2013	$	82.31
Total fair value of stock consideration	$	543.0
Total fair value of cash and stock consideration	$	1,972.9

The company deposited approximately $100 million of the above stock consideration in an escrow account to fund post-closing adjustments to the consideration and covenant and other indemnification obligations of the acquired entity’s stockholders for a period of two years following the effective date of the acquisition. As of the end of the third quarter of 2013, the consideration transferred at closing is subject to working capital and other adjustments in accordance with the acquisition agreement.

The company incurred certain acquisition and integration costs associated with the transaction that were expensed as incurred and are reflected in the Consolidated Statement of Income. A total of $63.0 million and $3.8 million was incurred during the first nine months of 2013 and 2012, respectively. Amounts included in cost of sales are related to recognition of fair value step-up in Champion international inventory, which is maintained on a FIFO basis. Amounts included in special (gains) and charges are related to acquisition costs, advisory and legal fees and integration costs. Amounts included in net interest expense are related to interest expense through the close date of the Champion transaction of the company’s $500 million public debt issuance in December 2012 as well as fees to secure term loans and short-term debt.

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 1.450% senior notes due 2017 and commercial paper borrowings backed by its syndicated credit facility. See Note 5 for further discussion on the company’s debt.

The Champion acquisition has been accounted for using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. Certain estimated values are not yet finalized and are subject to change, which could be significant.

The company will finalize the amounts recognized as information necessary to complete the analysis is obtained. The company expects to finalize these by the filing of the 2013 Form 10-K. Amounts for certain contingent liabilities, certain tangible and intangible assets, certain deferred tax assets and liabilities, income tax uncertainties, non-wholly owned subsidiaries and goodwill remain subject to change.

The following table summarizes the value of Champion assets acquired and liabilities assumed as of the acquisition date. Also summarized in the table, subsequent to the acquisition, net adjustments of $20.2 million have been made to the preliminary purchase price allocation of the assets acquired and liabilities assumed, with a corresponding adjustment to goodwill.

(millions)	Preliminary Allocation at Acquisition Date			Adjustments to Fair Value			Updated Allocation at September 30, 2013

Current assets	$	593.9		$	4.2		$	598.1
Property, plant and equipment	369.3			(7.9		)	361.4
Other assets	43.4			(14.3		)	29.1
Identifiable intangible assets
Customer relationships	840.0			—			840.0
Trademarks	120.0			—			120.0
Other technology	36.5			—			36.5
Total assets acquired	2,003.1			(18.0		)	1,985.1

Current liabilities	418.2			(19.4		)	398.8
Long-term debt	70.8			—			70.8
Net deferred tax liability	433.2			22.4			455.6
Noncontrolling interest and other liabilities	17.1			(0.8		)	16.3
Total liabilities and noncontrolling interests assumed	939.3			2.2			941.5

Goodwill	993.0			20.2			1,013.2
Total aggregate purchase price	2,056.8			—			2,056.8
Estimated future consideration payable to sellers	(83.9		)	—			(83.9		)
Total consideration transferred	$	1,972.9		$	—		$	1,972.9

The adjustments to the purchase price allocation during 2013 primarily relate to an estimated indemnification receivable, income tax liabilities, updated property, plant and equipment values and deferred taxes.

In accordance with the acquisition agreement, 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 in effect on January 1, 2014. The company’s current estimate for this additional payment is $84 million, which is classified within other current liabilities.

The customer relationships, trademarks and other technology are being amortized preliminarily over weighted average lives of 14, 12 and 7, respectively. In process research and development associated with the Champion acquisition was not significant.

Goodwill is calculated as the excess of consideration transferred over the fair value of identifiable net assets acquired and represents the expected synergies and other benefits of combining the operations of Champion with the operations of the company’s existing Global Energy business. Key areas of cost synergies include leveraging and simplifying the global supply chain, including the reduction of plant and distribution center locations and product line optimization, as well as the reduction of other redundant facilities.

The results of Champion’s operations have been included in the company’s consolidated financial statements since the close of the acquisition in April 2013. Due to the rapid pace at which the business is being fully integrated with the company’s Global Energy segment, including all customer selling activity, discrete financial data specific to the legacy Champion business is not necessarily available post acquisition.

Based on applicable accounting and reporting guidance, the Champion acquisition is not material to the company’s consolidated financial statements; therefore, pro forma financial information has not been presented.

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 Mexico and Central and South America. Annual sales of the business are approximately $43 million. 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.

In April 2013, the company completed the acquisition of Russia-based OOO Master Chemicals (“Master Chemicals”). Master Chemicals sells oil field chemicals to oil and gas producers located throughout Russia and parts of the Ukraine. Annual sales of the business are approximately $29 million. Approximately $3 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 Energy reportable segment during the third 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.

In April 2013, the company entered into an agreement to acquire AkzoNobel’s Purate business which specializes in global antimicrobial water treatment. With 2012 revenues of approximately $23 million, the Purate business provides patented, proprietary chlorine dioxide generation programs for use in a wide array of water treatment applications. Consummation of this transaction remains subject to certain regulatory clearances and other standard closing conditions. Upon closing, the business is expected to become part of the company’s Global Industrial reportable segment.

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.

In March 2012, the company acquired Econ Indústria e Comércio de Produtos de Higiene e Limpeza Ltda., a provider of cleaning and sanitizing products and services to the Brazilian foodservice industry. Based in Sao Paulo, Brazil, its annual sales are approximately $9 million. The business operations have been integrated within the company’s existing Brazil Institutional business and its results are part of 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.

Other significant acquisition summary

Acquisitions during the first nine months 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. 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, excluding the Champion acquisition, which is shown in a separate table, the components of the aggregate purchase prices of completed acquisitions during the third quarter and first nine months of 2013 and 2012 are shown in the following table.

	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(millions)	2013		2012		2013			2012

Net tangible assets acquired	$	—	$	0.3	$	(2.3	)	$	(1.0	)
Identifiable intangible assets
Customer relationships	—		—		58.8			8.4
Trademarks	—		—		1.4			0.5
Patents	—		—		—			2.8
Other technology	—		—		1.0			0.3
Total intangible assets	—		—		61.2			12.0
Goodwill	—		0.1		41.2			23.3
Total aggregate purchase price	—		0.4		100.1			34.3
Contingent consideration	—		—		9.8			(2.6		)
Liability for indemnification, net	—		15.2		2.4			16.0

Net cash paid for acquisitions	$	—	$	15.6	$	112.3		$	47.7

The weighted average useful lives of identifiable intangible assets acquired during the first nine months of 2013 and 2012, as shown in the previous table, were 12 and 13 years, respectively.

Dispositions

2013 Activity

In August 2013, the company sold substantially all the capital equipment design and build business of its Mobotec air emissions control business. The Mobotec equipment design and build business had 2012 sales of approximately $27 million, which were within the company’s Global Industrial reportable segment. An insignificant loss related to the sale was recorded in special (gains) and charges during the third quarter of 2013. The company has retained Mobotec’s chemical business.

There were no other business disposals during the first nine months of 2013.

2012 Activity

During the third quarter of 2012, the company received additional payments related to the sale of an investment in a U.S. business, originally sold prior to 2012. The corresponding gain recognized in the third quarter of 2012 was recorded in special (gains) and charges.

There were no significant business disposals during the first nine months of 2012.