Justice Dept. OK’s Ecolab’s $2.3B Champion Purchase

A deal reached between Ecolab and the U.S. Department of Justice requires Ecolab to sell Champion’s chemical-management services for deep-water oil and gas wells in the U.S. Gulf of Mexico—which comprise about 3 percent of its business.

After several months of delays, the U.S. Department of Justice has cleared the way for St. Paul-based Ecolab, Inc., to close on its $2.3 billion acquisition of Champion Technologies—and Ecolab expects the long-awaited deal to conclude within the “next several days.”

The Justice Department said Monday that it reached an agreement with Ecolab that resolves anticompetitive concerns and allows the deal to proceed. But it also requires Ecolab to sell Champion’s chemical-management services for deep-water oil and gas wells in the U.S. Gulf of Mexico—which comprise about 3 percent of its business.

Under the terms of the agreement, Ecolab will sell that portion of Champion’s business to Charlotte, North Carolina-based Clariant Corporation and acquire the remaining 97 percent. Ecolab said that the deal also calls for it to license some Champion chemicals to Clariant for use in the Gulf of Mexico and manufacture some products for Clariant for a “limited period.”

The Justice Department said that the transaction initially proposed by Ecolab and Houston-based Champion would have combined “two of the three leading providers of production chemical management services for deep-water wells in the U.S. Gulf of Mexico,” and without the divestitures, the transaction would have led to “higher prices, reduced service quality, and diminished innovation.”

Ecolab, which provides cleaning products, food safety services, pest control, and energy services for commercial and industrial customers, is among Minnesota’s 15-largest public companies based on revenue, which totaled $11.8 billion in 2012. The company’s acquisition of Champion is poised to make it a key producer of oil field chemicals and give it a strong position serving fast-growing shale oil production areas in Canada and the United States.

Champion has about $1.3 billion in sales and roughly 3,200 workers in 30 countries.

“We are pleased to have reached an agreement with the [Department of Justice] on this matter,” Ecolab Chairman and CEO Douglas M. Baker Jr. said in a statement. “We also remain very excited about the potential of this transaction. The reasons we were attracted to Champion in the first place remain solidly in place. Champion strengthens our position in the fast-growing oil and gas services industry. It bolsters our ability to better serve customers by bringing important and complementary geographic and technology strengths to our global energy business—particularly in the upstream production area—and enables us to more fully capitalize on the significant developing oil and gas market opportunities.”

Baker said that the Champion acquisition is expected to add $0.07 per share to Ecolab’s 2013 earnings—and it will boost earnings by about $0.50 per share by 2016.

The Champion deal has been under scrutiny from federal regulators for months and has been delayed several times.

Ecolab in mid-October announced its intent to buy Champion and expected the deal to close by the end of 2012. But a few weeks later, it revealed in a regulatory filing that the Justice Department had issued a “second request” for additional information and documentation related to the deal; such requests generally indicate government concern over potential anticompetitive issues.

Then in early December, Ecolab announced that it had amended its acquisition agreement with Champion to exclude a unit that sells water-treatment chemicals to oil refineries—a move that Ecolab expected to alleviate federal regulators’ concerns.

In late February, Ecolab said that it was close to receiving regulatory clearance for the deal and expected to close the acquisition in the first quarter of this year. But late last month, the company said the deal had been delayed again, that it continued to have “productive discussions” with the Justice Department, and expected the deal to close before April 15—which now appears likely to happen.

Leslie C. Overton, deputy assistant attorney general of the Justice Department’s Antitrust Division, said in a statement that Nalco Holding Company, which Ecolab bought in late 2011 in a deal valued at $8.3 billion, and Champion are “the largest and second-largest providers of production chemical management services to deep-water wells in the U.S. Gulf of Mexico and have vigorously competed against one another to the benefit of their customers.”

She added that the agreement that Ecolab and her agency reached will “preserve competition to provide these critical services, which support efficient production of oil and gas in deep-water environments.”