Ecolab Inc (ECL) recently completed the sale of its Vehicle Care division to Atlanta, Georgia-based Zep Inc. (ZEP) for roughly $120 million in cash. The divestment is expected to be dilutive to Ecolab’s earnings per share by 3 cents in 2013.
The Vehicle Care division was an operating unit under Ecolab’s U.S. Sanitizing and Cleaning Segment (43% of total revenues). In 2011, revenues from the Vehicle Care division came in at $66 million, accounting for 2% of the U.S. Sanitizing and Cleaning Segment revenues while adjusted EBITDA was $13 million.
The divestment of its under-performing Vehicle Care division will enable Ecolab to direct resources and focus on high growth avenues. Net after-tax proceeds from the divestiture were about $75 million. Since deleveraging remains a looming concern for Ecolab with a long-term debt of $5,386.7 million and a $1.7 billion cash payment for its latest acquisition, the net proceeds will be used for debt repayment and general corporate purposes.
The divestment will allow Ecolab to focus on its core business as the company gains competitive advantage and makes headway in the energy market with the upcoming acquisition of Champion Technologies. The proposed acquisition will beef up Ecolab and help the company benefit from the potential represented by one of the fastest growing industries in the U.S. Following the closure, the company is slated to become a giant in the oilfield chemical business.
Ecolab’s aggressive strategy to pursue acquisitions along with its ability to divest non-core, underperforming assets should sharpen the company’s focus on profitable niches. This should encourage investor sentiment.
We currently have a long-term ‘Neutral’ recommendation on Ecolab which carries a short-term Zacks #3 Rank (Hold).
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