NLC Nalco Holding Company Common Stock

Cleaning and sanitation products giant Ecolab Inc (ECL) has completed its takeover of Illinois-based water treatment services major Nalco Holding Company (NLC). This follows the approval of the $8.3 billion deal, announced in July 2011, by the shareholders of both companies and final antitrust clearance. Ecolab stated, on November 30, 2011, that more than 99% of the shares voted by its shareholders, in a special meeting, were cast in favor of the deal.

The merger marks the union of Nalco's market leadership in water and energy services and Ecolab's competency in food safety and cleaning, creating a new giant in water treatment space with more than $11 billion in sales and operations across 160 nations.

Under the deal terms, shareholders of Nalco may opt to receive either 0.7005 share of Ecolab common stock or $38.80 in cash for each Nalco share. The overall consideration is a mix of 70% stock and 30% cash.

Ecolab will issue roughly 68.3 million shares and will make a cash payment of roughly $1.6 billion to Nalco stockholders, representing an offer value of $5.6 billion. Moreover, Ecolab will assume $2.7 billion in Nalco debt, taking the total deal value to $8.3 billion. The deadline for Nalco shareholders to make their choice to receive cash or stock in accordance with the deal terms is December 7, 2011.

Nalco, with annual sales of $4 billion, is the global leader in water treatment services. The acquisition, the biggest ever for Ecolab, is highly complementary for the company and will enable it to significantly bolster its water management business.

The merger will enable the combined entity address major trends such as growing food demand and food safety, water scarcity, rising energy demand and healthcare needs for an aging population. Moreover, the integrated company will have a strong foothold in fast growing emerging markets.

The deal is expected to be accretive to the merged entity’s earnings in 2012 and beyond. There is also opportunity for attractive synergies with Ecolab expecting combined annual cost synergies of $150 million. Moreover, the combined entity will have a strong balance sheet and cash flows which will allow it to invest in key growth areas and pare debt. Our long-term Neutral recommendation on Ecolab is backed by a short-term Zacks #3 Rank (Hold).

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