Just days after announcing the second-biggest acquisition in company history, Ecolab Inc. said Wednesday it will sell its vehicle-care business to Zep Inc. for about $120 million.
The divestiture, expected to close by the end of the year, comes about seven years after Ecolab invested millions and expanded its car-wash products division with new products and a factory in Mendota Heights. But the sale, officials say, will help Ecolab focus on its core businesses, which involve high-tech sanitizing, cleaning and unclogging chemicals for various industries.
Wall Street welcomed the news. Ecolab closed Wednesday at $69.40, up 62 cents a share.
Andrew Wittmann, a senior equity research analyst for Robert W. Baird, said Wall Street always looked at car care as being different than Ecolab's other businesses.
Car care "was just not as strategic," Wittmann said. "It didn't have the same ability to differentiate itself and it didn't have the large multinational customer base which are the core tenets of what Ecolab is. ... Investors have been mindful of this for a matter of time. So it was not much of a surprise" that it's selling it off.
Ecolab's car-care unit has grown from $45 million in 2006 sales to about $66 million in 2012 sales. The unit generated about $13 million in earnings and has 110 employees. Those workers will join the ranks of Zep.
"Our vehicle care colleagues will be part of a business in which they will be more closely aligned and have access to the tools and resources that will support growth," Ecolab CEO Douglas Baker said in a statement Wednesday.
While Zep is headquartered in Atlanta, Zep officials intend to run Zep Vehicle Care from Minnesota. Zep, which generated $654 million in fiscal 2012 sales, already sells soaps, polishes, sealants, wheel and tire treatments and air fresheners to professional car washes, convenience stores, auto detailers and commercial fleet wash customers.
Ecolab's sales agreement with Zep was announced five days after Ecolab said it was buying Houston-based Champion Technologies for $2.2 billion in an effort to expand in the oil and gas industry.
Ecolab spokesman Mike Monahan insisted the timing of the Zep deal was a coincidence and had nothing to do with the company's plans to buy Champion.
Champion makes about $1.4 billion a year from servicing oil and gas customers and manufacturing chemical additives that unclog and protect pipelines, tanks, trucks and more.
Ecolab has traditionally made and distributed sanitizing, cleaning and pest elimination products and services for chain restaurants, hotels, hospitals and other institutions. Then in December 2011, Ecolab bought the oil, gas and water processing firm Nalco Holding Co. for $8.3 billion. Analysts largely applauded the Nalco and Champion deals, but some worry they be pushing Ecolab into more volatile industries with less predictable income streams.
While the divestiture of Ecolab's car care division will help Ecolab focus on its key markets, officials would not say if more spinoffs are expected.