Two weeks after the Department of Justice heightened its scrutiny of Ecolab's $2.2 billion purchase of a Texas oil additives maker, Ecolab is amending the deal.
The St. Paul-based company announced Monday that it is changing its terms to buy Houston-based Champion Technologies. The new deal will exclude a sliver of the company, mainly Champion's refinery processing and water solutions businesses.
Champion's core segments in oil exploration and extraction products will remain part of the sale, provided regulators give the OK, officials said. Ecolab hopes to proceed with buying the largest pieces of Champion before Dec. 31.
If allowed, the deal's price tag will drop slightly, from the original $2.2 billion to $2.16 billion. In a statement, Ecolab said the change "will not have a significant impact on the deal economics."
Ecolab spokesman Roman Blahoski said in a phone interview that "we believe this [new purchase agreement] will eliminate a potential area of concern with the DOJ."
The government sent Ecolab a letter last month requesting more information about Champion so it could determine whether the combined company would have too much control in the oil and gas industries. Such requests are not common and have to led to rulings in other cases that derailed acquisitions.
Ecolab, which now has $11 billion in annual sales, announced the Champion deal in October, almost 11 months after finalizing its purchase of Nalco, a water processing firm that also deals in the oil and gas industries.
While analysts generally praised the pending deal for expanding Ecolab's entrance into the oil and gas industries, the potential overlap between Nalco and Champion raised regulators' concerns.
The increased scrutiny was expected, Ecolab CEO Doug Baker said last week.
If regulators bless the revised deal, the refineries-related business will stay with Champion's parent company, Permian Mud Service. It had generated about $50 million a year in 2011 revenue.
The rest of the deal would still give Ecolab the majority of Champion, which manufactures chemical additives that unclog and protect oil drilling rigs, pipelines, tanks, trucks and more. Champion has 3,300 employees and $1.4 billion in annual sales.
Earnings boost expected
Ecolab officials said they still expect Champion to add about 12 cents a share to Ecolab's 2013 earnings, growing to 50 cents a share by 2016.
Deutsche Bank analyst David Begleiter said in a research note Monday that he approves of the stance Ecolab is taking to alleviate regulators' concerns.
"We view Ecolab's announcement ... as a positive. It was expected that Ecolab would have to amend its prior acquisition agreement. And there is now a high level of certainty around the deal closing by year end," Begleiter wrote. He added that Champion's refinery business "is small and less critical to the original strategic impetus for Ecolab to own Champion."
Baker said previously that Ecolab hadn't planned on buying Champion but was happy when the owner approached him about a possible deal.
Since October, Ecolab made plans to shut Champion's office in Grand Forks, N.D., and sell its non-core vehicle-care business to Zep Inc. for about $120 million. That divestiture closed Monday, Ecolab officials said.
Until a year ago, Ecolab was best known for making chemical sanitizers, dish and laundry detergents, dispensers and liquid filters for hotels, restaurants, hospitals, factories and other institutions. Now energy is one of its larger divisions.
Separately, Zep Inc. said Monday that it has completed the purchase of the Vehicle Care division of Ecolab Inc. for about $120 million.
Zep, an Atlanta-based producer of cleaning and maintenance supplies, said it will combine the former Ecolab division with its North American Sales and Service vehicle and fleet wash operations to create a new platform representing about 13 percent of net sales.
Ecolab's stock closed Monday at $71.52, down 56 cents.