Ecolab Acquisition of Champion

Transcription

1 Ecolab Acquisition of Champion Strengthening opportunities and positions in the fast-growing energy services markets October 12,

2 Cautionary Statement Cautionary Statements Regarding Forward-Looking Information This communication contains certain statements relating to future events and our intentions, beliefs, expectations and predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of Words or phrases such as will likely result, are expected to, will continue, is anticipated, we believe, we expect, estimate, project, may, will, intend, plan, believe, target, forecast (including the negative or variations thereof) or similar terminology used in connection with any discussion of future plans, actions or events generally identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding benefits of the Champion acquisition, integration plans and expected synergies, the expected timing of completion of the acquisition, credit ratings impact from the acquisition, future cash flow and debt repayment, anticipated future financial and operating performance and results, including third quarter adjusted earnings per share, second half 2012 free cash flow and net income, synergy estimates and timing and benefits of the acquisition, future earnings per share and cash flow accretion, returns of invested capital, debt repayment, stock repurchases, investments and future acquisitions and estimates for growth. These statements are based on the current expectations of management of the company. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this communication. These risks and uncertainties include (i) the risk that the regulatory approvals or clearances required for the acquisition may not be obtained, or that required regulatory approvals may delay the acquisition or result in the imposition of conditions that could have a material adverse effect on the company or cause the company to abandon the acquisition, (ii) the risk that the conditions to the closing of the acquisition may not be satisfied, (iii) the risk that a material adverse change, event or occurrence may affect the company or Champion prior to the closing of the acquisition and may delay the acquisition or cause the company to abandon the acquisition, (iv) problems that may arise in successfully integrating the businesses of the company and Champion, which may result in the combined business not operating as effectively and efficiently as expected, (v) the possibility that the acquisition may involve unexpected costs, unexpected liabilities or unexpected delays, (vi) the risk that the credit ratings of the company may be different from what the company currently expects, (vii) the risk that the businesses of the company or Champion may suffer as a result of uncertainty surrounding the acquisition and (viii) the risk that disruptions from the transaction will harm relationships with customers, employees and suppliers. Other unknown or unpredictable factors could also have material adverse effects on future results, performance or achievements of the company, Champion and the combined business. For a further discussion of these and other risks and uncertainties applicable to the company, see the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and the company s other public filings with the Securities and Exchange Commission (the SEC ). In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this communication may not occur. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this communication. The company does not undertake, and expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events or changes in expectations, except as required by law. Non-Solicitation This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. 2

3 Third Quarter 2012 Forecast Update Adjusted EPS expected to be $0.87, +16% Pro forma fixed currency sales growth of 7%, driven by very strong Energy Services, Kay and Latin America growth Gross and operating margin to expand, reflecting new products, better pricing, moderated raw material costs, synergies/cost efficiencies Nalco merger on track Cost synergies on plan $75 million to be realized in 2012 $250 million run-rate by year-end 2015 Sales growth synergies ahead of plan and on track to realize $500 million run-rate by year-end forecast range remains unchanged at $ $3.02; expect to review and narrow range in October 30 release 3

4 Transaction Overview Acquisition of Champion, a leading global provider of energy specialty products and services to oil & gas producers Estimated 2012 sales $1.4 billion EBITDA margins approximately 14% Deal structure $2.2 billion enterprise value, including approximately $37 million of Champion net debt - ~$2.1 billion payment to shareholders, subject to adjustment, funded with 75% cash / 25% stock - ~8 million shares to be issued at close, based on estimated payments to shareholders Very attractive financially Expect $150 million run-rate cost synergies by end of 2015; $50 million in adjusted EPS accretion of approximately $0.12 per share increasing to approximately $0.50 per share by 2016 EBITDA metrics 11.4x 2012E adjusted EBITDA 9.1x 2012E adjusted EBITDA (with $50 million of first year cost synergies) 6.4x 2012E adjusted EBITDA (with $150 million of run-rate cost synergies) Deal structure preserves strong investment grade rating Plan to return to A range metrics within 3 years Metrics improved through both growth and debt pay down Expected closing Q (subject to regulatory approval and other customary closing conditions) 4

5 Strategic Rationale Better positions Ecolab s Global Energy Services to fully capitalize on major energy opportunities Highly complementary geography, technology and customer base Strengthens North American business, better positioning us to fully capitalize on the new oil and gas opportunities Enhances our technology, further strengthening our capabilities Significant leverage/accretion opportunities Accretive to sales growth, EBITDA margins and EPS Drives improved ongoing leverage in global supply chain Makes Ecolab stronger Strengthens position in fastest growth segment Has de minimis impact on company cyclicality as business focus is principally on production phase of energy business Acquisition improves our earnings potential going forward Deal structure maintains strong investment grade balance sheet 5

6 Why Now? Timing dictated by seller. Transaction extremely compelling strategically. Financial and organizational capacity strong. Champion was selling now Long time interest in Champion Near-perfect fit geographically and technologically While opportunity came earlier than desired, it is very attractive strategically and financially Financing plan and deal structure consistent with solid balance sheet management and financial objectives We are in position to manage this well Plan to create stand-alone integration team as we did for Nalco integration Nalco merger integration 80% complete so we can shift integration experts Champion integration impact falls on the part of the organization least impacted by earlier Nalco integration We have an excellent Global Energy Services leadership team 6

7 Snapshot of Businesses Ecolab Global Energy Services Champion Pro-Forma 2012E Revenue ~$2.3B ~$1.4B $3.7B 2012E Operating Income ~$0.35B ~$0.16B ~$0.5B % Margin ~15% ~11% ~14% 2012E EBITDA ~$0.4B ~$0.2B $0.6B % Margin ~17% ~14% ~17% Revenue by Geography North America 50% 70% 60% South America 10% 10% 10% Eastern Hemisphere 40% 20% 30% Business Mix Onshore 60% 85% 70% Offshore 40% 15% 30% Note: Dollars in millions. 2012E figures represent Ecolab and Champion management forecasts. Excludes the impact of synergies, purchase accounting and special gains and charges. 7

8 Balanced Business (BASED ON PRO FORMA 2011 REVENUES) Ecolab Without Champion Revenue: $11 billion Ecolab With Champion Revenue: $12.2 billion 17% By Strategy 26% 38% Safe Food Clean Water Abundant Energy Healthier Environments 25% 23% 35% 19% 17% By Segment 17% 7% 4% 17% 29% Global Paper U.S. Other International C, S & OS U.S. C&S Global Water Global Energy 25% 15% 6% 4% 26% 26% 23% By Geography 20% 25% 2% 53% North America Europe Asia Pacific / Latin America Middle East Africa 20% 23% 2% 55% 8

9 Macro Trends in Our Favor: Food Safety, Water, Energy Population Growth Economic Shifts More people: +50% by Trend toward protein means 2x calories will be needed Food production accounts for nearly 75% of water consumption Emerging markets will account for the majority of absolute GDP growth through 2015 Energy / Material Demand Water Shortage Aging Population Out of Home Shift (meal preparation) Demand for energy and water driving higher costs and shorter supply, with energy sources more difficult to reach and treat and more water intensive Major customers instituting ~20% water reduction goals Water scarcity is expected to be a dominant issue, particularly in high growth emerging market economies Aging population in EMEA, Japan and China will drive healthcare Meal prep away from home continues in emerging markets Nature Technology Evolution presents new food safety and infection challenges Science & technology requires broader set of product and process improvements 9

10 Macro Trends in Our Favor: Food Safety, Water, Energy Population Growth Economic Shifts Energy / Material Demand Water Shortage Aging Population Out of Home Shift (meal preparation) More people: +50% by Trend toward protein means 2x calories will be needed Food production accounts for nearly 75% of water consumption Emerging markets will account for the majority of absolute GDP growth through 2015 Demand for energy and water driving higher costs and shorter supply, with energy sources more difficult to reach and treat and more water intensive Major customers instituting ~20% water reduction goals Water scarcity is expected to be a dominant issue, particularly in high growth emerging market economies Meal prep away from home continues in emerging markets Aging population in EMEA, Japan, and China will drive healthcare Nature Technology Evolution presents new food safety and infection challenges Science & technology requires broader set of product and process improvements 10

11 Strategic Investment Focus DEVELOP AND EXPAND LEADERSHIP POSITION IN THE FASTEST GROWING MARKETS GROWTH SEGMENTS Water Healthcare Energy 11

12 Champion Overview 12

13 Major Long-Term Growth Market GROWTH OF HARDER-TO-REACH, HARDER-TO-TREAT ENERGY SOURCES REQUIRE MORE TECHNOLOGY AND WATER TREATMENT SOLUTIONS Harder-to-reach sources growing in importance... requiring more energy specialty products Production Type ~ Nalco Sales per BBL Enhanced Oil Recovery $ Oil Sands $ Ultra-Deepwater $ The Easy Oil is Gone Deepwater $ Unconventional Shale $ Conventional Offshore $ Conventional - W Texas $ Conventional - Middle East $

14 Champion Overview Fast Growing, Global Business Complementary Markets and Geographies Global energy specialty products focused on steadier-growth upstream oil & gas producers and downstream refinery operators Strengthens position in fast-growing new energy segments Complementary geographies Champion adds stronger position in emerging shale markets Organization Headquartered in Houston, TX 3,300 Employees 1,800 Field Sales & Service 300 Research & Technical Services 100+ locations in 30+ countries Champion Sales ($ mlns) ($ mlns) 1,600 1, E 20% 5% 10% 95% 70% 2012E Sales ~$1.4B Sales by Segment Upstream Downstream 2,400 2,000 1,600 1,200 Sales by Geography North America South America Eastern Hemisphere Ecolab Global Energy Services E 40% 40% 10% Sales 60% 50% 2012E Sales $2.2B - $2.3B Note: 2012E figures represent Ecolab and Champion management forecasts. 14

15 Natural Fit Between Two Very Complementary Organizations Enhanced Geographic Market Coverage Energy Services stronger in Eastern Hemisphere and offshore deepwater Champion stronger in US and Canada and Gulf of Mexico shallow-water Complementary Customer Bases Energy Services stronger with Super Majors and National Oil Companies Champion stronger with Majors and Independents Best-in-Class Technology and Service Recognized expertise in water treatment, flow assurance and hydraulic fracturing Innovation in oil/water separation, stimulation and deposit control 15

16 Strengthens Ecolab Global Energy Combined Opportunity Technology Critical Mass Geography Culture Consolidate offerings to Best-in-Class technology for full product and service offerings in upstream markets Very complementary customer base and infrastructure to support rapid growth in North American shale plays and innovate for new oil Combined footprint provides expedited channel-tomarket for strategically important unconventional and deepwater technologies Serving the customer through technical leadership and onsite problem solving Go-to-Market One channel sells best of both product lines via recurring sale, relationship-based business model Synergy Significant synergy savings funding growth, improved cost position, stronger earnings and cash flow 16

17 Financial Summary 17

18 Acquisition of Champion, a leading global provider of energy specialty products and services to oil & gas producers Total enterprise value of $2.2 billion 11.4x 2012E adjusted EBITDA 9.1x 2012E adjusted EBITDA (with $50 million of first year cost synergies) 6.4x 2012E adjusted EBITDA (with $150 million of run-rate cost synergies) Very Attractive Financially Expect $150 million run-rate cost synergies by end of 2015 Significantly accretive, with 2013 adjusted EPS accretion of approximately $0.12 per share increasing to approximately $0.50 per share by 2016 Deal structure preserves strong investment grade rating Approximately 75% cash / 25% stock mix Plan to return to A range metrics within 3 years Expected closing Q Subject to regulatory approval and other customary closing conditions Transaction Overview Champion/Global Energy Services integration work will not impact other Ecolab businesses 18

19 Significant Cost Synergy Potential Consolidate to best in class technologies, services, people Modeling after highly successful Nalco merger integration Separate integration team with sole focus on Champion integration process Champion integration work will not impact other Ecolab businesses ($ in millions) Cost Synergies SG&A $60 Supply Chain 60 Product Line Optimization 30 Total Cost Synergies $150 Cumulative Synergy Realization ($ in millions) $50 $100 $130 $150 19

20 Consistent Financial Management Principles Focus on financial flexibility through conservative balance sheet management Dividend payout ratio of 25% - 35% of earnings Plan to return to A range metrics within 3 years Total debt-to-capital ratio in the 35% - 40% range < 2.0x total debt/ebitda Expect to complete remaining $280 million of $1 billion share repurchase in 2013 Preserve balance sheet strength for selective acquisitions Use share repurchase program to offset the dilutive impact of option exercises and maintain target capital structure 20

21 Financing Plan Ecolab has significant financial flexibility to pursue Champion acquisition Financing $2.2 billion enterprise value, including approximately $37 million of Champion net debt - ~$2.1 billion estimated payment to shareholders, subject to adjustment, funded with 75% cash / 25% stock - ~$1.7 billion in cash to be paid at close - ~8 million shares to be issued at close, based on estimated payment to shareholders - Number of shares fixed using share price of $ within collar of +/- 10% (+/- $6.47 per share) - Ecolab option to pay cash if stock price below collar at close Finance Strategy for Close - Syndicate $900 million Term Loan (3 year term) - Raise cash through CP issuance and bank term loan prior to close Term-out Financing Strategy - Issue approximately $750 million of new senior notes - Tenor and timing subject to market conditions Expect ROIC to improve ~100 bp per year Expect capital expenditures to remain in range of 5% to 6% of sales Future focus on traditional, bolt-on acquisitions 21

22 Closing Conditions Receipt of necessary regulatory approvals / clearances Will require U.S., Canada and several other country filings Completion of other standard and customary closing conditions Expect to close by the end of

23 Summary 23

24 Summary Unique opportunity that further improves Ecolab s growth profile Strengthens position in fastest growth segment Acquisition will be accretive to sales growth, EBITDA margins and EPS Better positions Ecolab s Global Energy Services to fully capitalize on major energy market opportunities Highly complementary geography, technology and customer base Strengthens North American business, better positioning us to fully capitalize on the new oil and gas opportunities Enhances our technology, further strengthening our capabilities Financing plan and deal structure consistent with solid balance sheet management and financial objectives Makes Ecolab stronger Better balanced portfolio, consistent with strategy Strengthens drivers for continued consistent, reliable double-digit growth 24

25 Consistent Earnings Patterns Similar rhythm and pace to the companies operating profit Post-Nalco merger Ecolab Ecolab + Nalco Ecolab + Nalco + Champion 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Index: 1Q 2007 =

26 Our Nalco Integration is On or Ahead of Plan What We Said Where We Are ~$150 million of Run Rate Cost Synergies $500 million of Growth Synergies Adjusted Tax Rate of 31% 2.6x PF Net Debt / 2012E EBITDA Raised Synergy Forecast to ~$250 million $500 Million Looks Solid; Ahead of 2012 Target 2012 Expected Adjusted Rate of 29% - 30% 2.6x Net Debt to 2012E EBITDA EPS ~$ range $ $

27 Building Better, Stronger, More Consistent Ecolab Growth Strategically Compelling Financially Attractive Strengthening Growth 27