Leading cleaning and sanitation products maker,
) recently announced that it will be offering 1.450% senior notes
due 2017 for an aggregate purchase price of $500 million. Ecolab
anticipates the offering to be completed by December 13, 2012,
subject to certain customary conditions.
The net proceeds will be used primarily to fund a portion of
the cash payments to be made for the recently announced
acquisition of Permian Mud Service, Inc., the parent company of
Champion Technologies and Corsicana Technologies.
In October 2012, in an effort to expand its Global Energy
Services franchise, Ecolab agreed to acquire privately-owned
Champion Technologies and its related company Corsicana
Technologies. Earlier the deal was for $2.2 billion, to be paid
in cash and stock. However, recently in December 2012, the
company altered the agreement. Consequently, the value of the
transaction has been revised to $2.16 billion.
The decision to acquire Champion within a year of the Nalco
acquisition (for roughly $8.3 billion) in December 2011
strengthens the company's energy business in North America.
Following the closure, the company is slated to become a giant in
the oilfield chemical business.
The deal is expected to close by the end of 2012, subject to
standard closing conditions and regulatory clearance. Although
both the companies are aggressively working together, management
at Ecolab did not provide any assurance that the transaction will
be completed within the stipulated time frame, or at all.
In case the deal doesn't run through, Ecolab might use all or
a portion of the net proceeds for general corporate purposes. The
company can also use the proceeds along with additional funds, if
required, to fund the special optional redemption of the
Earlier, in August 2012, Ecolab announced that it had
completed its public offering of $500 million of 1.000% senior
notes due 2015. The company utilized the net proceeds from the
offering to payback a portion of its outstanding commercial paper
borrowings and for general corporate purposes.
Ecolab's debt-to-capital ratio at the end of the third quarter
of 2012 was 50%. Following the completion of the offering, the
new ratio will be 52%.
Moreover, net interest expense in the reported quarter was
$64.2 million. Given Ecolab's strong cash balance, we believe
that the company will be able to meet its interest obligation.
The company exited the third quarter of 2012 with cash and cash
equivalents of $324 million, up 56.3% from the previous-year
Over the last twelve months the debt burden of the company has
increased substantially, with its long term debt increasing seven
times to $5,386.7 million, majority of which is directed to fund
acquisitions. Despite the increase in debt level we believe that
its financial position is strong enough owing to the steady
top-line growth and strong cash flow.
St. Paul, Minnesota-based Ecolab serves the food service, food
and beverage processing, healthcare, energy, water treatment and
hospitality markets in the U.S. as well as internationally.
Although we are impressed by Ecolab's strong international
exposure, we remain cautious about currency fluctuations and
aggressive competition from the likes of
The Clorox Company
Church & Dwight Co. Inc.
We currently have a 'Neutral' recommendation on Ecolab. The
stock carries a short-term Zacks #3 Rank (Hold rating).
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ECOLAB INC (ECL): Free Stock Analysis Report
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