Acquisitions and Dispositions

9 Months Ended

Sep. 30, 2012

Acquisitions and Dispositions

Acquisitions and Dispositions

3.       Acquisitions and Dispositions

Nalco Merger

On December 1, 2011, the company completed its merger with Nalco, the leading water treatment and process improvement company. The total fair value of cash and stock consideration transferred to acquire all of Nalco’s common stock was approximately $5.5 billion.

The company incurred certain Nalco related special charges associated with the merger during 2012, which were expensed as incurred and are reflected in the Consolidated Statement of Income. During the first nine months of 2012, a total of $133.4 million were incurred with $47.0 million included in special (gains) and charges related to merger and integration charges, $72.7 million and a corresponding reduction of $4.5 million included in cost of sales and net income attributable to Ecolab, respectively, related to recognition of fair value step-up in Nalco inventory and $18.2 million included in net interest expense related to a loss on the extinguishment of Nalco’s senior notes. During the third quarter of 2012, $17.9 million of Nalco related special charges were incurred.

The merger 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 following table summarizes the value of Nalco assets acquired and liabilities assumed as of the merger date. Also summarized in the table, subsequent to the merger, net adjustments of $52.5 million have been made to the preliminary purchase price allocations of the assets acquired and liabilities assumed, with a corresponding adjustment to goodwill. The additional consideration of $2.1 million transferred in 2012, and corresponding adjustment to goodwill, relates to the resolution of an appraisal action with respect to dissenting Nalco shares.

			2012
	Initial		Adjustments			September 30
(millions)	Valuation		to Fair Value			2012
Current assets	$	1,869.6	$	(0.1	)	$	1,869.5
Property, plant and equipment	1,069.2		(1.2		)	1,068.0
Other assets	97.3		(3.3		)	94.0
Identifiable intangible assets
Customer relationships	2,160.0		—			2,160.0
Patents	321.0		—			321.0
Trade names	1,230.0		—			1,230.0
Trademarks	79.0		—			79.0
Other technology	91.0		—			91.0
Total assets acquired	6,917.1		(4.6		)	6,912.5
Current liabilities	1,105.5		19.7			1,125.2
Long-term debt	2,858.4		—			2,858.4
Pension and postretirement benefits	505.7		5.7			511.4
Net deferred tax liability	1,188.7		(8.6		)	1,180.1
Noncontrolling interest and other liabilities	167.7		31.1			198.8
Total liabilities and noncontrolling interests assumed	5,826.0		47.9			5,873.9
Goodwill	4,403.9		54.6			4,458.5
Total consideration transferred	$	5,495.0	$	2.1		$	5,497.1

The adjustments to the purchase price allocation during 2012 primarily relate to accruals, contingent liabilities, current and noncurrent deferred tax assets and liabilities and other assets and liabilities of non-wholly owned subsidiaries.

The company will finalize the amounts recognized as information necessary to complete the analyses is obtained. The company expects to finalize these amounts no later than one year from the merger date (by November 30, 2012). Amounts for certain contingent liabilities, certain deferred tax assets and liabilities and goodwill remain subject to change.

The customer relationships, patents, finite-lived trademarks and other technology are being amortized over weighted average lives of 15, 14, 15 and 8 years, respectively. The Nalco trade name has been determined to have an indefinite life.

The following table provides unaudited pro forma net sales and pro forma results of operations for the third quarter and nine months ended September 30, 2011, assuming the Nalco merger had been completed on January 1, 2010. The unaudited pro forma results reflect certain adjustments that are directly attributable to the merger, supportable and expected to have a continuing impact on the combined results. The unaudited pro forma results do not include any anticipated cost savings from operating efficiencies or synergies that could result from the merger. Accordingly, such unaudited pro forma amounts are not necessarily indicative of the results that actually would have occurred had the merger been completed on January 1, 2010, nor are they indicative of future operating results of the combined company.

	Third Quarter Ended		Nine Months Ended
(millions)	September 30, 2011		September 30, 2011
Net sales	$	2,967.3	$	8,419.6
Net income attributable to Ecolab	189.2		548.5
Earnings attributable to Ecolab per common share
Basic	$	0.63	$	1.82
Diluted	$	0.61	$	1.78

Other significant acquisition activity

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 became part of the company’s International Cleaning, Sanitizing & Other Services reportable segment during the first quarter of 2012.

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 became part of the company’s International Cleaning, Sanitizing & Other Services reportable segment during the first quarter of 2012.

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 became part of the company’s International Cleaning, Sanitizing & Other Services reportable segment during the second quarter of 2012.

In September 2012, subsequent to the company’s fiscal quarter end for international operations, the company announced it had agreed to acquire Mexico-based Quimiproductos S.A. de C.V., a wholly-owned subsidiary of Fomento Econominco 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 to be acquired are approximately $35 million. As of the date of this report, the transaction has not yet been completed. Completion of the transaction is subject to regulatory clearance and other customary closing conditions.

In October 2012, the company entered into an agreement and plan of merger under which the company has agreed 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. Champion sales were approximately $1.2 billion in 2011. Subject to certain adjustments set out in the merger agreement, total consideration is expected to be approximately $2.2 billion, paid through a mix of approximately 75% cash and 25% Ecolab stock. In connection with the agreement, Ecolab will deposit $100 million of the consideration in an escrow account to satisfy adjustments to the consideration or indemnification obligations of Champion for up to two years following the effective date of the transaction. Financing for this transaction is expected to initially be met through a combination of term loan funding and the company’s U.S. commercial paper program. The company anticipates terming out a portion of the short-term borrowings through the issuance of publicly or privately held debt securities. The transaction is expected to close in the fourth quarter of 2012, subject to regulatory clearance and other customary closing conditions.

2011 Activity

In December 2010, subsequent to the company’s fiscal year end for international operations, the company completed the purchase of the assets of Cleantec located in Brisbane, Queensland, Australia. Cleantec is a developer, manufacturer and marketer of cleaning and hygiene products principally within the Australian food and beverage processing, foodservice, hospitality and textile care markets. The business, which had annual sales of approximately $55 million, became part of the company’s International Cleaning, Sanitizing & Other Services segment during the first quarter of 2011. The total purchase price was approximately $43 million, of which $2 million was placed in an escrow account for indemnification purposes. During the third quarter of 2012, the $2 million escrow balance was paid to the seller.

In March 2011, the company closed on the purchase of the assets of O.R. Solutions, Inc., a privately-held developer and marketer of surgical fluid warming and cooling systems in the U.S. The business, which had annual sales of approximately $55 million, became part of the company’s U.S. Cleaning & Sanitizing segment during the first quarter of 2011. The total purchase price was approximately $260 million, of which $26 million was placed in an escrow account for indemnification purposes related to general representations and warranties. During the third quarter of 2012, $13 million of the escrow balance was paid to the seller. Assuming the general representations and warranties continue to be met, the remaining $13 million escrow balance is expected to be paid to the seller in the first quarter of 2013.

Other significant acquisition summary

Completed acquisitions during the nine months of 2012 and all of 2011 (excluding Nalco) 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. Based upon purchase price allocations, excluding the Nalco merger, the components of the aggregate purchase prices of completed acquisitions during the third quarter and nine months 2012 and 2011 are shown in the following table.

	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(millions)	2012		2011		2012			2011
Net tangible assets acquired	$	0.3	$	—	$	(1.0	)	$	57.4
Identifiable intangible assets
Customer relationships	—		0.2		8.4			144.9
Trademarks	—		—		0.5			11.2
Patents	—		—		2.8			0.3
Other technology	—		—		0.3			8.4
Total intangible assets	—		0.2		12.0			164.8
Goodwill	0.1		0.6		23.3			92.5
Total aggregate purchase price	0.4		0.8		34.3			314.7
Contingent consideration	—		—		(2.6		)	(4.7		)
Liability for indemnification	15.2		—		16.0			(28.1		)
Net cash paid for acquisitions	$	15.6	$	0.8	$	47.7		$	281.9

The weighted average useful lives of identifiable intangible assets acquired in the above table during the nine months of 2012 and 2011 were 13 and 14 years, respectively.

Dispositions

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.

In October 2012, the company entered into an agreement to sell its Vehicle Care business. Vehicle Care sales were approximately $65 million in 2011, the majority of which were within the company’s U.S. Cleaning & Sanitizing reportable segment. Subject to the terms of the agreement, total consideration is expected to be approximately $120 million. Based on the company’s current assessment, the company expects to recognize a gain of approximately $75 million (approximately $45 million after tax). The transaction is expected to close in the fourth quarter, subject to regulatory clearance and other customary closing conditions.

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

There were no business disposals during 2011.