ECL Progresses on Deal with Champion

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Following a substantial delay in acquiring Champion Technologies, Ecolab Inc. (ECL) announced that it has finally reached a consent agreement with the U.S. Department of Justice (:DOJ) regarding the deal. In the earlier press release, the company proposed the closing time as Apr 15, 2013.

Initially, the transaction was expected to close by the end of 2012 but due to certain antitrust-related issues with the U.S. Department of Justice (“DOJ”), the company had extended its agreement till Feb 28, though it was further delayed to end March.

The news boosted investor confidence on this global cleaning and sanitation products maker, as reflected by the stock reaching a new 52 week high of $80.83 on Tuesday, Apr 9.

According to the DOJ, Ecolab needs to sell Champion chemical management services used in deepwater wells in the U.S. Gulf of Mexico to a third party. The DOJ has incorporated these steps in the agreement to ensure healthy competition in these critical services. Nalco, now a part of Ecolab, and Champion, are the leading suppliers of this service and the Antitrust Division fear that the merger will lead to a monopoly, which might adversely affect service quality and efficiency as well push up prices.

Ecolab accepted these terms as it claims that only 3% of Champion’s business will be affected by the sell-off. It also maintains that its initial goal of becoming a giant in the oilfield chemical business will remain intact. The Champion's deal would be the company’s largest acquisition since the Nalco buyout. The proposed acquisition will beef up Ecolab’s Global Energy Services franchise and expand its footprint in the North American energy market.

The total value of the Champion’s deal now stands at $2.3 billion, inclusive of assumed debt. Although the deal will no longer be accretive to 2013 earnings by 12 cents as predicted earlier, Ecolab now expects adjusted earnings per share to increase by 7 cents in 2013. The accretion is expected to increase significantly to 50 cents per share by 2016.

Ecolab currently has a Zacks Rank #3 (Hold). Other chemical-specialty companies such as Balchem Corp. (BCPC), Minerals Technologies (MTX) and Prospect Global Resources (PGRX) warrant a look. While Balchem is a Zacks Rank #1 (Strong Buy) stock, the other two carry a Zacks Rank #2 (Buy).

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