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Table of Contents
TABLE OF CONTENTS
As filed with the U.S. Securities and Exchange Commission on October 6, 2011
Registration No. 333-176601
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
To
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ECOLAB INC.
(Exact name of registrant as specified in its charter)
Delaware | 2840 | 41-0231510 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
||
370 Wabasha Street North Saint Paul, Minnesota 55102 (800) 232-6522 (Address, including ZIP code, and telephone number, including area code, of registrant's principal executive offices) |
James J. Seifert, Esq.
General Counsel and Secretary
Ecolab Inc.
370 Wabasha Street North
St. Paul, Minnesota 55102
(651) 293-2981
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
Copies to:
Dieter A. Schmitz, Esq. Craig A. Roeder, Esq. Baker & McKenzie LLP 130 East Randolph Street Suite 3900 Chicago, Illinois (312) 861-8000 |
Stephen N. Landsman, Esq. Vice President, General Counsel and Secretary Nalco Holding Company 1601 West Diehl Road Naperville, Illinois 60563 (630) 305-1000 |
Scott A. Barshay, Esq. George F. Schoen, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 828 Eighth Avenue New York, New York 10019 (212) 474-1000 |
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed joint proxy statement/prospectus.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
o Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
o Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of such securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to appropriate registration or qualification under the securities laws of such jurisdiction.
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
SUBJECT TO COMPLETION
DATED , 2011
MERGER PROPOSEDYOUR VOTE IS VERY IMPORTANT
Ecolab Inc., which we refer to as Ecolab, and Nalco Holding Company, which we refer to as Nalco, have entered into an Agreement and Plan of Merger dated as of July 19, 2011, which we refer to as the merger agreement, pursuant to which Nalco will merge with and into a wholly-owned subsidiary of Ecolab. Upon completion of the merger, the separate existence of Nalco will cease, and Ecolab will be the parent company of the Ecolab subsidiary surviving the merger and Nalco's subsidiaries. The obligations of Ecolab and Nalco to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement. If the merger is completed, Nalco stockholders may elect to receive either 0.7005 shares of Ecolab common stock or $38.80 in cash, without interest, per share of Nalco common stock, provided that approximately 70% of the issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive Ecolab common stock and approximately 30% of issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive cash. In order to achieve this 70%/30% stock-cash mix of consideration, the merger agreement provides for pro-rata adjustments to and reallocation of the stock and cash elections made by Nalco stockholders, as well as the allocation of consideration to be paid with respect to Nalco shares owned by stockholders who fail to make an election. Accordingly, depending on the elections made by other Nalco stockholders, you may not receive the amount of cash or the number of shares of Ecolab common stock that you request on your election form. Cash will be paid in lieu of any fractional shares of Ecolab common stock.
Ecolab and Nalco will each hold a special meeting of their respective stockholders in connection with the proposed merger. At the special meeting of Ecolab stockholders, Ecolab stockholders will be asked to vote on (i) a proposal to approve the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, (ii) a proposal to adopt an amendment to Ecolab's restated certificate of incorporation following completion of the merger to increase the number of authorized shares of Ecolab common stock to 800,000,000 shares and (iii) a proposal to adjourn the Ecolab special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the share issuance proposal. The Ecolab board of directors unanimously recommends that Ecolab stockholders vote "FOR" each of the proposals to be considered at the Ecolab special meeting. At the special meeting of Nalco stockholders, Nalco stockholders will be asked to vote on (i) a proposal to adopt the merger agreement, (ii) a non-binding, advisory proposal to approve the compensation that may become payable to Nalco's named executive officers in connection with the completion of the merger and (iii) a proposal to adjourn the Nalco special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the merger proposal. The Nalco board of directors unanimously recommends that Nalco stockholders vote "FOR" each of the proposals to be considered at the Nalco special meeting.
This joint proxy statement/prospectus contains detailed information about Ecolab, Nalco, the special meetings, the merger agreement and the merger. You should read this joint proxy statement/prospectus carefully and in its entirety before voting, including the section titled "Risk Factors" beginning on page 42.
Your vote is very important. Whether or not you expect to attend either special meeting in person, please submit a proxy to vote your shares as promptly as possible.
We look forward to the successful combination of Ecolab and Nalco.
Sincerely,
Douglas M. Baker, Jr. Chairman, President and Chief Executive Officer Ecolab Inc. |
J. Erik Fyrwald Chairman, President and Chief Executive Officer Nalco Holding Company |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 2011 and is first being mailed to Ecolab and Nalco stockholders on or about , 2011.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held
on , 2011
To the stockholders of Ecolab Inc.:
We are pleased to invite you to attend the special meeting of stockholders of Ecolab Inc., which we refer to as Ecolab, which will be held at the Ecolab Corporate Center, 370 Wabasha Street North, St. Paul, Minnesota 55102 on , 2011, at , local time, for the following purposes:
Ecolab will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof. Please refer to the joint proxy statement/prospectus of which this notice forms a part for further information with respect to the business to be transacted at the Ecolab special meeting.
The Ecolab board of directors has unanimously approved the merger agreement, declared it advisable, approved the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger and determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, are in the best interests of Ecolab and its stockholders. The Ecolab board of directors has further unanimously approved an amendment to Ecolab's restated certificate of incorporation in accordance with the additional share authorization proposal and has determined that such amendment is advisable and in the best interests of Ecolab and its stockholders. The Ecolab board of directors accordingly unanimously recommends that Ecolab stockholders vote "FOR" each of the share issuance proposal, the additional share authorization proposal and the Ecolab adjournment proposal.
The Ecolab board of directors has fixed the close of business on , 2011 as the record date for determination of Ecolab stockholders entitled to receive notice of, and to vote at, the Ecolab special meeting or any adjournments or postponements thereof. Only holders of record of Ecolab common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the Ecolab special meeting. The share issuance proposal and Ecolab adjournment proposal each require approval by a majority of the total votes cast at the Ecolab special meeting by the holders of shares of Ecolab common stock present in person or represented by proxy and entitled to vote on that proposal. Approval of the additional share authorization proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Ecolab common stock entitled to vote on the proposal. A list of stockholders of Ecolab will be available for review for any purpose germane to
the special meeting at Ecolab's executive offices and principal place of business at 370 Wabasha Street North, St. Paul, Minnesota 55102, during regular business hours for a period of ten days before the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.
Your vote is very important. Whether or not you expect to attend the special meeting in person, we urge you to submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting. You may use one of the following three methods:
If your shares are held in the name of a bank, broker or other fiduciary, please follow the easy directions on the voting instruction card furnished by the record holder.
Please note that if you hold shares in different accounts, it is important that you vote the shares represented by each account.
The enclosed joint proxy statement/prospectus provides a detailed description of the merger and the merger agreement as well as a description of each of the proposals to be considered at the special meeting. We urge you to read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies or need help voting your shares of Ecolab common stock, please contact Ecolab's proxy solicitor:
501
Madison Avenue, 20th Floor
New York, New York 10022
Stockholders call toll-free: (877) 456-3510
or
Banks and brokers call collect: (212) 750-5833
By Order of the Board of Directors of Ecolab Inc. | ||
James J. Seifert General Counsel and Secretary |
St. Paul,
Minnesota
, 2011
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held on , 2011
To the stockholders of Nalco Holding Company:
We are pleased to invite you to attend the special meeting of stockholders of Nalco Holding Company, which we refer to as Nalco, which will be held at the Nalco Company Corporate Offices at 1601 West Diehl Road, Naperville, Illinois, 60563-1198 on , 2011, at , local time, for the following purposes:
Nalco will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof. Please refer to the joint proxy statement/prospectus of which this notice forms a part for further information with respect to the business to be transacted at the Nalco special meeting.
The Nalco board of directors has unanimously approved the merger agreement, declared it advisable and determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of Nalco and its stockholders. The Nalco board of directors unanimously recommends that Nalco stockholders vote "FOR" each of the merger proposal, the compensation proposal and the Nalco adjournment proposal.
The Nalco board of directors has fixed the close of business on , 2011 as the record date for determination of Nalco stockholders entitled to receive notice of, and to vote at, the Nalco special meeting or any adjournments or postponements thereof. Only holders of record of Nalco common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the Nalco special meeting. Approval of the merger proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock entitled to vote on the proposal. The compensation proposal and Nalco adjournment proposal each require the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock present in person or represented by proxy at the Nalco special meeting and entitled to vote on that proposal. A list of stockholders of Nalco will be available for review for any purpose germane to the special meeting at Nalco's executive offices and principal place of business at 1601 West Diehl Road, Naperville, Illinois 60563-1198, during regular business hours for a period of ten days before the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.
Your vote is very important. Whether or not you expect to attend the special meeting in person, we urge you to submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting. You may use one of the following three methods:
If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.
The enclosed joint proxy statement/prospectus provides a detailed description of the merger and the merger agreement. We urge you to read this joint proxy statement/prospectus, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies or need help voting your shares of Nalco common stock, please contact Nalco's proxy solicitor:
105
Madison Avenue
New York, New York 10016
proxy@mackenziepartners.com
Call Collect: (212) 929-5500
or
Toll-Free (800) 322-2885
By Order of the Board of Directors of Nalco Holding Company | ||
Stephen N. Landsman Vice President, General Counsel and Secretary |
Naperville,
Illinois
, 2011
This joint proxy statement/prospectus incorporates important business and financial information about Ecolab and Nalco from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference in this joint proxy statement/prospectus free of charge by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:
Innisfree M&A Incorporated | MacKenzie Partners, Inc. | |
501 Madison Avenue, 20th Floor New York, New York 10022 |
105 Madison Avenue New York, New York 10016 proxy@mackenziepartners.com |
|
Stockholders call toll-free: (877) 456-3510 or Banks and brokers call collect: (212) 750-5833 |
Call Collect: (212) 929-5500 or Toll-Free: (800) 322-2885 |
|
or |
or |
|
Ecolab Inc. 370 Wabasha Street North St. Paul, Minnesota 55102 Attn: Corporate Secretary (651) 293-2836 |
Nalco Holding Company 1601 West Diehl Road Naperville, Illinois 60563-1198 Attn: Corporate Secretary (630) 305-1000 |
Investors may also consult Ecolab's or Nalco's website for more information concerning the merger described in this joint proxy statement/prospectus. Ecolab's website is www.ecolab.com. Nalco's website is www.nalco.com. Information included on these websites is not incorporated by reference in this joint proxy statement/prospectus.
If you would like to request any documents, please do so by , 2011 in order to receive them before the special meetings.
For a more detailed description of the information incorporated by reference in this joint proxy statement/prospectus and how you may obtain it, see "Where You Can Find More Information" beginning on page 192.
ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed by Ecolab with the U.S. Securities and Exchange Commission, which we refer to as the SEC, constitutes a prospectus of Ecolab under Section 5 of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the shares of Ecolab common stock to be issued to Nalco stockholders pursuant to the merger. This joint proxy statement/prospectus also constitutes a joint proxy statement for both Ecolab and Nalco under Section 14(a) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. In addition, it constitutes a notice of meeting with respect to the special meeting of Ecolab stockholders and a notice of meeting with respect to the special meeting of Nalco stockholders.
You should rely only on the information contained in or incorporated by reference in this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference in, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated , 2011. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference in this joint proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither our mailing of this joint proxy statement/prospectus to Ecolab stockholders or Nalco stockholders nor the issuance by Ecolab of shares of common stock pursuant to the merger will create any implication to the contrary.
This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this joint proxy statement/prospectus regarding Ecolab has been provided by Ecolab and information contained in this joint proxy statement/prospectus regarding Nalco has been provided by Nalco.
Unless otherwise indicated or as the context otherwise requires, all references in this joint proxy statement/prospectus to:
i
ii
The following are some questions that you, as a stockholder of Ecolab or a stockholder of Nalco, may have regarding the merger and the other matters being considered at the special meetings and the answers to those questions. Ecolab and Nalco urge you to carefully read the remainder of this joint proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the special meetings. Additional important information is also contained in the Annexes to and the documents incorporated by reference in this joint proxy statement/prospectus.
Q: Why am I receiving this joint proxy statement/prospectus?
In order to complete the merger, among other things:
Ecolab and Nalco will hold separate special meetings of their stockholders to obtain these approvals. This joint proxy statement/prospectus, including its Annexes, contains and incorporates by reference important information about Ecolab and Nalco, the merger and the stockholder meetings of Ecolab and Nalco. You should read all the available information carefully and in its entirety.
Q: What will I receive in the merger?
Nalco Stockholders: If the merger is completed, Nalco stockholders may elect to receive either 0.7005 shares of Ecolab common stock or $38.80 in cash, without interest, per share of Nalco common stock, which, together, we refer to as the merger consideration, provided that approximately 70% of the issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive Ecolab common stock and approximately 30% of issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive cash. The adjustments that will be made to achieve the 70% stock/30% cash mix are described in more detail below. Nalco stockholders will not receive any fractional shares of Ecolab common stock in the merger. Instead, they will receive cash in lieu of any fractional shares of Ecolab common stock.
Q: Am I guaranteed to receive the form of merger consideration that I elect to receive for my shares of Nalco common stock?
1
elections made by other Nalco stockholders, each Nalco stockholder who elects to receive Ecolab common stock for all of their shares in the merger may receive a portion of their consideration in cash, but will receive Ecolab common stock in exchange for at least 70% of their Nalco shares, and each Nalco stockholder who elects to receive cash for all of their shares in the merger may receive a portion of their consideration in Ecolab common stock, but will receive cash in exchange for at least 30% of their Nalco shares. A Nalco stockholder who elects to receive a combination of Ecolab common stock and cash for their shares in the merger may receive Ecolab common stock and cash in a proportion different from that which such stockholder elected. For further information, please see the section titled "The Merger AgreementMerger Consideration" beginning on page 127.
Q: How do I make my election?
Q: Can I revoke or change my election after I mail my election form?
Q: What happens if I do not make an election or my election form is not received before the election deadline?
2
Ecolab stock price is less than $55.39 per share, then any Nalco stockholder who has not made an election will be deemed to have made an election to receive cash in the merger. If the closing Ecolab stock price is equal to $55.39, then any Nalco stockholder who has not made an election will receive Ecolab common stock or cash or a combination of both, as necessary to achieve the 70%/30% stock-cash mix of consideration described above. Additionally, no election shares with respect to which deemed elections are made in accordance with the merger agreement will be subject to the same adjustment and reallocation provisions that apply to shares for which affirmative stock or cash elections are made by Nalco stockholders in order to achieve the overall 70%/30% stock-cash mix of consideration. The $55.39 share price used for purposes of this deemed election procedure is equal to the closing price of Ecolab's common stock on the New York Stock Exchange, which we refer to as the NYSE, on July 19, 2011, the last trading day before public announcement of the merger, and was used by the parties to establish the 0.7005 exchange ratio provided in the merger agreement. Based on this $55.39 per share closing price, 0.7005 shares of Ecolab common stock per share of Nalco common stock represented approximately $38.80 in value for each share of Nalco common stock, the equivalent of the amount of cash per share of Nalco common stock that Nalco stockholders may elect to receive as merger consideration. For more information, please see the section titled "The Merger AgreementMerger Consideration" beginning on page 127.
Q: How will I receive the merger consideration to which I am entitled?
Q: What is the value of the Ecolab common stock included in the merger consideration?
Q: When and where will the special meetings be held?
3
Nalco Stockholders: The special meeting of Nalco stockholders will be held at the Nalco Company Corporate Offices at 1601 West Diehl Road, Naperville, Illinois, 60563-1198, on , 2011, at , local time.
Q: What proposals will be considered at the special meetings?
Nalco Stockholders: At the Nalco special meeting, Nalco's stockholders will be asked to consider and vote on (i) a proposal to adopt the merger agreement, which we refer to as the merger proposal, (ii) a non-binding, advisory proposal to approve the compensation that may become payable to Nalco's named executive officers in connection with the completion of the merger, which we refer to as the compensation proposal, and (iii) a proposal to adjourn the Nalco special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the merger proposal, which we refer to as the Nalco adjournment proposal. Nalco will transact no other business at its special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof.
Q; How does the Ecolab board of directors recommend that Ecolab stockholders vote?
Q: How does the Nalco board of directors recommend that Nalco stockholders vote?
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Q: Who is entitled to vote at the special meetings?
Nalco Stockholders: The record date for the Nalco special meeting is , 2011. Only holders of record of issued and outstanding shares of Nalco common stock as of the close of business on the record date are entitled to notice of, and to vote at, the Nalco special meeting or any adjournment or postponement of the Nalco special meeting.
Q: How many votes do I have?
Nalco Stockholders: Holders of Nalco common stock are entitled to one vote for each share of Nalco common stock owned as of the close of business on the Nalco record date. As of the close of business on the Nalco record date, there were shares of Nalco common stock outstanding and entitled to vote at the Nalco special meeting.
Q: What constitutes a quorum at the special meetings?
Abstentions and broker non-votes, which are described below, will be included in the calculation of the number of shares of Ecolab common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. However, shares of Ecolab common stock held in treasury will not be included in the calculation of the number of shares of Ecolab common stock represented at the special meeting for purposes of determining whether a quorum has been achieved.
Nalco Stockholders: Stockholders who hold shares representing a majority of the issued and outstanding shares of Nalco common stock must be present in person or represented by proxy to constitute a quorum for the transaction of business at the Nalco special meeting. If a quorum is not present, any officer of Nalco entitled to preside at or to act as secretary of the Nalco special meeting will have the power to adjourn the meeting from time to time until a quorum is present. If a quorum is present, an adjournment of the Nalco special meeting may be made from time to
5
time by approval of the holders of a majority of the shares of Nalco common stock present in person or represented by proxy and entitled to vote at the Nalco special meeting. If a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the merger proposal, then Nalco stockholders may be asked to vote on a proposal to adjourn the special meeting so as to permit the further solicitation of proxies. No notice of an adjourned meeting need be given unless the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At any subsequent reconvening of the special meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting and all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent meeting.
Abstentions and broker non-votes, which are described below, will be included in the calculation of the number of shares of Nalco common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. However, shares of Nalco common stock held in treasury will not be included in the calculation of the number of shares of Nalco common stock represented at the special meeting for purposes of determining whether a quorum has been achieved.
Q: What vote is required to approve each of the proposals?
Approval of the additional share authorization proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Ecolab common stock entitled to vote on the proposal. Failures to vote, votes to abstain and broker non-votes will have the effect of a vote "AGAINST" the proposal.
As of the record date for the Ecolab special meeting, Ecolab directors, executive officers and their affiliates held and were entitled to vote approximately shares of Ecolab common stock, representing approximately % of Ecolab's outstanding shares of common stock.
Nalco Stockholders: Approval of the merger proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock entitled to vote on the proposal. Failures to vote, votes to abstain and broker non-votes will have the effect of a vote "AGAINST" the proposal.
The compensation proposal and Nalco adjournment proposal each require the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock present in person or represented by proxy at the Nalco special meeting and entitled to vote on that proposal. Votes to abstain are treated the same as votes "AGAINST" these proposals. Broker non-votes and failures to vote will have no effect on either proposal, assuming a quorum is present.
As of the record date for the Nalco special meeting, Nalco directors, executive officers and their affiliates held and were entitled to vote approximately shares of Nalco common stock, representing approximately % of Nalco's outstanding shares of common stock.
6
Q: How do I vote if I am a stockholder of record?
If you hold Ecolab shares in "street name" through a stock brokerage account or through a bank or other nominee, please follow the voting instructions provided by your broker, bank or other nominee to ensure that your shares are represented at the Ecolab special meeting. If you hold shares through an employee plan provided by Ecolab, please see the question below "How are my employee plan shares voted?"
Please note that if you hold your Ecolab shares through different accounts, it is important that you vote using each proxy card you receive.
Nalco Stockholders. If you are a stockholder of record of Nalco as of the close of business on the record date for the Nalco special meeting, you may vote in person by attending the Nalco special meeting or, to ensure your shares are represented at the Nalco special meeting, you may authorize a proxy to vote by:
If you hold Nalco shares in "street name" through a stock brokerage account or through a bank or other nominee, please follow the voting instructions provided by your broker, bank or other nominee to ensure that your shares are represented at the Nalco special meeting.
Q: My shares are held in "street name" by my broker, bank or other nominee. Will my broker, bank or other nominee automatically vote my shares for me?
7
at the Nalco special meeting. You should therefore provide your broker, bank or other nominee with instructions as to how to vote your shares of Ecolab common stock or Nalco common stock.
Please follow the voting instructions provided by your broker, bank or other nominee so that it may vote your shares on your behalf. Please note that you may not vote shares held in street name by returning a proxy card directly to Ecolab or Nalco or by voting in person at your special meeting unless you first obtain a "legal proxy" executed in your favor by your broker, bank or other nominee.
Q: How are my Ecolab employee plan shares voted?
Generally, you will receive only one proxy card covering all the shares you hold in your own name, through the Ecolab Dividend Reinvestment Plan sponsored by Computershare Trust Company, N.A or through the Ecolab employee plans.
You may use one of the following three methods:
To allow sufficient time for voting of your shares by the trustee or administrator of your Ecolab employee plan, your voting instructions should be received by , 2011 to allow for tabulation.
In addition, since only the trustee or administrator of an Ecolab employee plan can vote your shares held through that plan, you will not be able to vote your Ecolab employee plan shares personally at the Ecolab special meeting. Please note that, except as described below, the applicable trust agreement governing the Ecolab Savings Plan and ESOP provides that if the trustee does not receive your voting instructions, the trustee will vote your shares in the same proportion as it votes the shares for which instructions are timely received from other participants.
Voting of the shares in the Ecolab Savings Plan and ESOP is subject to federal pension laws, which require the trustee or administrator to act as a fiduciary for participants in the Ecolab Savings Plan and ESOP in deciding how to vote the shares. Therefore, irrespective of these voting provisions, it is possible that the trustee or administrator may decide to vote shares other than as set forth above if it determines it is required to do so under applicable law.
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You must vote shares that you hold through a broker, bank or other nominee separately in accordance with each of the voting instruction cards you receive with respect to such street name shares of Ecolab common stock.
Q: What will happen if I fail to vote or I abstain from voting?
Nalco Stockholders: If you are a Nalco stockholder and fail to vote, fail to instruct your broker, bank or other nominee to vote, or mark your proxy or voting instructions to abstain, it will have the effect of a vote "AGAINST" the merger proposal. If you are a Nalco stockholder and fail to instruct your broker, bank or other nominee to vote or fail to vote, it will have no effect on the compensation proposal or the Nalco adjournment proposal, assuming a quorum is present. If you are a Nalco stockholder and you mark your proxy or voting instructions to abstain, it will have the effect of a vote "AGAINST" the compensation proposal and Nalco adjournment proposal.
Q: What will happen if I return my proxy card without indicating how to vote?
Nalco Stockholders: If you properly complete and sign your proxy card but do not indicate how your shares of Nalco common stock should be voted on a matter, the shares of Nalco common stock represented by your proxy will be voted as the Nalco board of directors recommends and, therefore, "FOR" each of the merger proposal, the compensation proposal and the Nalco adjournment proposal.
Q: Can I change my vote or revoke my proxy after I have returned a proxy or voting instruction card?
If you are the holder of record of either Ecolab or Nalco stock: If you are the holder of record of stock, you can change your vote or revoke your proxy at any time before your proxy is voted at your special meeting. You can do this in one of three ways:
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special meeting or the Nalco special meeting without voting or revoking your proxy will not revoke any proxy that you have previously given or change your vote.
If you choose either of the first two methods, your notice of revocation or your new proxy must be received by Ecolab or Nalco, as applicable, no later than the beginning of the applicable special meeting. If you have submitted a proxy for your shares by telephone or via the Internet, you may revoke your prior telephone or Internet proxy by any manner described above.
If you hold shares of either Ecolab or Nalco in "street name:" If your shares are held in street name, you must contact your broker, bank or other nominee to change your vote or revoke your proxy.
If you hold Ecolab shares in an Ecolab employee plan. If you hold shares of Ecolab common stock in an Ecolab employee plan, there are two ways in which you may revoke your instructions to the trustee or administrator and change your vote with respect to voting the shares allocated to you in your Ecolab employee plan:
Q: What happens if I sell my shares of Nalco common stock before the Nalco special meeting?
Q: What if I hold shares in both Ecolab and Nalco?
Q: Will Ecolab stockholders receive any shares or other consideration as a result of the merger?
Q: What will happen if all of the proposals to be considered at the special meetings are not approved?
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will not be conditioned or dependant on stockholder approval of any of the other proposals to be considered at the special meetings. If Ecolab's stockholders approve the additional share authorization proposal, Ecolab does not intend to file an amendment to its restated certificate of incorporation giving effect to the increase in its authorized shares of common stock contemplated by the additional share authorization proposal until after the completion of the merger. Accordingly, if the share issuance proposal or the merger proposal are not approved by stockholders, or the merger is not completed for any other reason, Ecolab does not intend to implement the additional share authorization proposal, even if the proposal is approved by its stockholders at the Ecolab special meeting.
Q: Do I need to do anything with my shares of common stock other than voting for the proposals at the special meetings?
Nalco Stockholders: To elect to receive shares of Ecolab common stock, cash or some combination of common stock and cash, you must indicate on an election form, which will be sent to you in a separate mailing approximately 15 business days prior to the Nalco special meeting, the number of shares of Nalco common stock with respect to which you elect to receive shares of Ecolab common stock, the number of shares of Nalco common stock with respect to which you elect to receive cash or that you make no election with respect to your shares of Nalco common stock. The Nalco stockholder base will be monitored periodically from the mailing date until and including the effective time of the merger, and an election form and letter of transmittal will be mailed from time to time to each new Nalco stockholder of record. You must return the form in the separate envelope provided so that it is received no later than the election deadline, which is expected to be 5:00 p.m., New York City time, on the date that is five business days following the closing date of the merger. Ecolab and Nalco will publicly announce by press release the election deadline as soon as the expected closing date of the of the merger is determined, but you are encouraged to return your election form and letter of transmittal as promptly as practicable. If you hold your shares through a bank, broker or other nominee, you should follow the instructions provided by such bank, broker or other nominee to ensure that your election instructions are timely returned. Please do not send your Nalco stock certificates with your proxy card. For further information, please see the section titled "The Merger AgreementStockholder Elections" beginning on page 128.
Q: Will I still be paid dividends prior to the merger?
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Q: When do you expect the merger to be completed?
Q: What are the conditions to completion of the merger?
Q: Who will serve on the board of directors of Ecolab following the completion of the merger?
Q: What role will Nalco's senior management have with Ecolab following completion of the merger?
Q: What will happen to outstanding Nalco equity compensation awards in the merger?
Each Nalco restricted stock unit award that vests solely based on the passage of time held by certain officers of Nalco will fully vest as of the time immediately prior to the effective time of the
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merger pursuant to change of control agreements (including the Change of Control Agreements described under the section titled "The MergerInterests of Nalco Directors and Executive Officers in the MergerChange of Control Agreements," beginning on page 114). Such awards will be settled for shares of Nalco common stock immediately prior to the merger.
At the effective time of the merger:
The "stock award exchange ratio" means the quotient obtained by dividing (i) the closing price of shares of Nalco common stock on the NYSE for the last trading day prior to the closing of the merger, by (ii) the closing price of shares of Ecolab common stock on the NYSE for the last trading day prior to the closing of the merger.
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Q: What are the material U.S. federal income tax consequences of the merger to U.S. holders of Nalco common stock?
Please carefully review the information set forth in the section titled "Material U.S. Federal Income Tax Consequences of the Merger" beginning on page 148 for a description of the material U.S. federal income tax consequences of the merger. The tax consequences of the merger to each Nalco stockholder will depend on such Nalco stockholder's own situation. Please consult your tax advisor for a full understanding of the tax consequences of the merger to you.
Q: Are stockholders entitled to appraisal rights in connection with the merger?
Under Delaware law, appraisal rights are only available if, among other things, stockholders are required to accept cash for their shares (other than cash in lieu of fractional shares). Therefore, with respect to any shares of Nalco common stock that have not been surrendered for payment for which you would be required under the merger agreement to receive cash merger consideration (other than cash in lieu of fractional shares of Ecolab common stock), you may have the right, if you do not vote in favor of the merger agreement, and otherwise comply with the applicable requirements of Section 262, in lieu of receiving the cash merger consideration for those shares, to obtain payment in cash for the fair value of those shares as determined by the Delaware Court of Chancery. Merger Subsidiary reserves the right to take the position that appraisal may only be sought with respect to shares described in the two preceding sentences of this paragraph, and may not be exercised with respect to any shares as to which stock was received.
Whether or not a stockholder will be required to accept cash for their shares in the merger will not be known until after the vote on the merger. However, stockholders who wish to preserve any appraisal rights they may have must so advise Nalco prior to the vote on the merger. In addition to submitting a demand for appraisal, in order to preserve any appraisal rights you may have, you must not vote in favor of the merger agreement, must not surrender your shares for payment of the merger consideration, and must otherwise follow the procedures prescribed by Section 262. In view of the complexity of Section 262, Nalco stockholders who may wish to dissent from the
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merger and pursue appraisal rights should consult their legal advisors. For additional information, please see the sections titled "The MergerAppraisal Rights" beginning on page 124 and "Appraisal Rights" beginning on page 180. In addition, the full text of Section 262 is included as Annex D to this joint proxy statement/prospectus.
Q: Are there any risks in the merger that I should consider?
Q: Where can I find more information about the parties to the merger?
Q: Who can help answer my questions?
If you are an Ecolab stockholder: | If you are a Nalco stockholder: | |||
Innisfree M&A Incorporated 501 Madison Avenue, 20th Floor New York, New York 10022 Stockholders call toll-free: (877) 456-3510 or Banks and brokers call collect: (212) 750-5833 |
MacKenzie Partners, Inc. 105 Madison Avenue New York, New York 10016 proxy@mackenziepartners.com Call Collect: (212) 929-5500 or Toll-Free: (800) 322-2885 |
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or |
or |
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Ecolab Inc. 370 Wabasha Street North St. Paul, Minnesota 55102 Attn: Corporate Secretary (651) 293-2836 |
Nalco Holding Company 1601 West Diehl Road Naperville, Illinois 60563-1198 Attn: Corporate Secretary (630) 305-1000 |
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This summary highlights information contained elsewhere in this joint proxy statement/prospectus and may not contain all the information that is important to you with respect to the merger and the other matters being considered at the Ecolab and Nalco special meetings. Ecolab and Nalco urge you to read the remainder of this joint proxy statement/prospectus carefully, including the attached Annexes, and the other documents to which we have referred you. See also the section titled "Where You Can Find More Information" beginning on page 192. We have included page references in this summary to direct you to a more complete description of the topics presented below.
Ecolab Inc.
With sales of $6 billion and more than 26,000 associates, Ecolab Inc., a Delaware corporation, is the global leader in cleaning, sanitizing, food safety and infection prevention products and services and delivers comprehensive programs and services in more than 160 countries. Ecolab also provides pest elimination, maintenance and repair services. Ecolab provides products and services primarily to hotels and restaurants, healthcare and educational facilities, quick-service (fast-food and other convenience store) units, grocery stores, commercial and institutional laundries, light industry, dairy plants and farms, food and beverage processors and the vehicle wash industry. A strong commitment to customer support is a distinguishing characteristic of Ecolab's business.
Ecolab's common stock is listed and traded on the NYSE under the symbol "ECL."
The principal executive offices of Ecolab are located at 370 Wabasha Street North, St. Paul, Minnesota 55102 and its telephone number is (800) 232-6522.
Nalco Holding Company
Nalco Holding Company, a Delaware corporation, is the world's leading water treatment and process improvement company, delivering significant environmental, social and economic performance benefits to a variety of industrial and institutional customers. Nalco has over 12,400 employees working in more than 150 countries. Nalco programs and services are used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits and extend asset life, among other functions, and in production processes to enhance process efficiency, extend asset life and improve customers' end products. Nalco also helps customers reduce energy, water and other natural resource consumption, minimizing environmental releases.
Nalco's common stock is listed and traded on the NYSE under the symbol "NLC."
The principal executive offices of Nalco are located at 1601 West Diehl Road, Naperville, Illinois 60563-1198 and its telephone number is (630) 305-1000.
Sustainability Partners Corporation
Sustainability Partners Corporation, a wholly-owned subsidiary of Ecolab, which we refer to as Merger Subsidiary, is a Delaware corporation that was formed on July 14, 2011 for the sole purpose of effecting the merger. In the merger, Nalco will be merged with and into Merger Subsidiary, with Merger Subsidiary surviving as a wholly-owned subsidiary of Ecolab.
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A copy of the merger agreement is attached as Annex A to this joint proxy statement/prospectus. Ecolab and Nalco encourage you to read the entire merger agreement carefully because it is the principal document governing the merger. For more information on the merger agreement, see the section titled "The Merger Agreement" beginning on page 126.
Effects of the Merger (see page 68)
Subject to the terms and conditions of the merger agreement, at the effective time of the merger, Nalco will be merged with and into Merger Subsidiary, a wholly-owned subsidiary of Ecolab formed for the sole purpose of effecting the merger. Merger Subsidiary will survive the merger as a wholly-owned subsidiary of Ecolab.
Merger Consideration (see page 127)
In the merger, each share of Nalco common stock issued and outstanding immediately prior to the effective time of the merger, other than shares owned by Ecolab, Nalco or any of their respective wholly-owned subsidiaries and shares in respect of which appraisal rights have been properly exercised and not withdrawn, will be converted into the right to receive at the election of the stockholder, subject to certain proration and reallocation procedures described below, either 0.7005 shares of Ecolab common stock or $38.80 in cash, without interest. Nalco stockholders will not receive any fractional shares of Ecolab common stock in the merger. Instead, they will receive cash in lieu of any fractional shares of Ecolab common stock.
Under the merger agreement, approximately 70% of the issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive Ecolab common stock and approximately 30% of issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive cash. In order to achieve this 70%/30% stock-cash mix of consideration, the merger agreement provides for pro-rata adjustments to and reallocation of the stock and cash elections made by Nalco stockholders, as well as the allocation of consideration to be paid with respect to Nalco shares owned by stockholders who fail to make an election. Accordingly, each Nalco stockholder may receive a combination of cash and shares of Ecolab common stock that is different from what that stockholder elected, depending on the elections made by other Nalco stockholders. Each Nalco stockholder who elects to receive Ecolab common stock for all of their shares in the merger may receive a portion of their consideration in cash, but will receive Ecolab common stock in exchange for at least 70% of their Nalco shares. Each Nalco stockholder who elects to receive cash for all of their shares in the merger may receive a portion of their consideration in Ecolab common stock, but will receive cash in exchange for at least 30% of their Nalco shares.
The merger agreement also provides for the allocation of consideration to be paid with respect to shares owned by Nalco stockholders who fail to make an election. If the closing Ecolab stock price is less than $55.39, then any Nalco stockholder who has not made an election will be deemed to have made an election to receive cash. If the closing Ecolab stock price is greater than $55.39, then any Nalco stockholder who has not made an election will be deemed to have made an election to receive stock. If the closing Ecolab stock price is equal to $55.39, then any Nalco stockholder who has not made an election will receive Ecolab common stock or cash or a combination of both, as necessary to achieve the 70%/30% stock-cash mix as described above.
Based on the closing price of Ecolab common stock on the NYSE on July 19, 2011, the last trading day before public announcement of the merger, 0.7005 shares of Ecolab common stock per share of Nalco common stock represented approximately $38.80 in value for each share of Nalco common stock. Based on the closing price of Ecolab common stock on the NYSE on ,
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2011, the latest practicable trading day before the date of this joint proxy statement/prospectus, 0.7005 shares of Ecolab common stock per share of Nalco common stock represented approximately $ in value for each share of Nalco common stock.
During the period prior to the execution of the merger agreement during which representatives of Ecolab and Nalco were discussing alternative transaction structures, the Ecolab board of directors considered structures that included all stock, all cash, a 50%/50% stock-cash mix and a 70%/30% stock-cash mix. The Ecolab board of directors determined that a 70%/30% consideration mix was most appropriate because this mix would (i) allow Ecolab to increase its offer price from its original offer (which contemplated an all-stock merger) while maintaining attractive earnings per share accretion (more attractive than an all-stock structure), (ii) provide Nalco stockholders with the opportunity to participate in the strong business performance, accelerated growth and other opportunities expected of the combined company as a stockholder of the combined company, (iii) maintain the tax-free nature of the stock portion of the transaction for Nalco stockholders, (iv) allow Ecolab to maintain an investment grade debt rating, which the Ecolab board considered important to permit Ecolab to take advantage of future opportunities, such as additional acquisitions, while minimizing the risks of a highly leveraged capital structure at a time of a relatively uncertain financing environment and (v) provide Ecolab with more flexibility to adjust its capital structure through share repurchases as market conditions develop. The Nalco board of directors determined that a 70%/30% stock-cash mix of consideration was appropriate because, in addition to (ii) above, it could allow Ecolab to increase its offer price, which could result in a higher value to Nalco stockholders, and because it would provide Nalco stockholders with the choice to receive cash, shares of Ecolab common stock or a combination of the two based on each stockholder's individual preference, subject to the proration and reallocation provisions of the merger agreement.
Treatment of Nalco Equity Compensation Awards (see page 130)
Each Director RSU will fully vest immediately prior to the effective time of the merger and, at the effective time of the merger, will be converted into the right to receive either (i) 0.7005 shares of Ecolab common stock or (ii) $38.80, in cash, without interest, subject to the adjustment and reallocation provisions described under the section titled "The Merger AgreementMerger Consideration," beginning on page 127.
Each Time-Vesting RSU held by certain officers of Nalco will fully vest and be settled for shares of Nalco common stock as of the time immediately prior to the effective time of the merger pursuant to change of control agreements (including the Change of Control Agreements described under the section titled "The MergerInterests of Nalco Directors and Executive Officers in the MergerChange of Control Agreements," beginning on page 114).
At the effective time of the merger:
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The "stock award exchange ratio" means the quotient obtained by dividing (i) the closing price of shares of Nalco common stock on the NYSE for the last trading day prior to the closing of the merger, by (ii) the closing price of shares of Ecolab common stock on the NYSE for the last trading day prior to the closing of the merger.
Risk Factors (see page 42)
There are significant risks and uncertainties associated with the merger, which are described in the section titled "Risk Factors" beginning on page 42. You should carefully read and consider these risks and uncertainties.
Recommendation of the Ecolab Board of Directors (see page 80)
After careful consideration, the Ecolab board of directors has unanimously approved the merger agreement, declared it advisable, approved the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger and determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, are in the best interests of Ecolab and its stockholders. The Ecolab board of directors has further unanimously approved an amendment to Ecolab's restated certificate of incorporation in accordance with the additional share authorization proposal and has determined that such amendment is advisable and in the best interests of Ecolab and its stockholders. The Ecolab board of directors accordingly unanimously recommends that Ecolab stockholders vote "FOR" each of the share issuance proposal, the additional share authorization proposal and the Ecolab adjournment proposal.
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Opinion of Ecolab's Financial Advisor (see page 91)
In connection with the merger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which we refer to as BofA Merrill Lynch, Ecolab's financial advisor, delivered to Ecolab's board of directors a written opinion, dated July 19, 2011, as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be paid in the merger by Ecolab. The full text of the written opinion, dated July 19, 2011, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this joint proxy statement/prospectus and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to Ecolab's board of directors (in its capacity as such) for the benefit and use of Ecolab's board of directors in connection with and for purposes of its evaluation of the merger consideration to be paid in the merger from a financial point of view. BofA Merrill Lynch's opinion does not address any other aspect of the merger and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Ecolab or in which Ecolab might engage or as to the underlying business decision of Ecolab to proceed with or effect the merger. BofA Merrill Lynch's opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any related matter.
Recommendation of the Nalco Board of Directors (see page 83)
After careful consideration, the Nalco board of directors has unanimously approved the merger agreement, declared it advisable and determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are in the best interests of Nalco and its stockholders. The Nalco board of directors accordingly unanimously recommends that Nalco stockholders vote "FOR" each of the merger proposal, the compensation proposal and the Nalco adjournment proposal.
Opinion of Nalco's Financial Advisor (see page 102)
Nalco retained Goldman, Sachs & Co., which we refer to as Goldman Sachs, to provide it with financial advisory services, including, at Nalco's request, to undertake a study to enable Goldman Sachs to render an opinion as to the fairness, from a financial point of view, of the consideration to be received in connection with the merger. Goldman Sachs delivered its opinion to the Nalco board of directors that, as of July 19, 2011 and based upon and subject to the factors and assumptions set forth therein, the cash merger consideration and the stock merger consideration, taken in the aggregate, which we refer to as the aggregate merger consideration, to be paid to the holders of Nalco common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The aggregate merger consideration is subject to certain procedures and limitations contained in the merger agreement, as to which procedures and limitations Goldman Sachs expressed no opinion. Nalco selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the proposed merger.
The full text of the written opinion of Goldman Sachs, dated July 19, 2011, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. This summary of the Goldman Sachs opinion provided in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion. Nalco stockholders are urged to read the opinion carefully and in its entirety. Goldman Sachs provided its opinion for the information and assistance of the Nalco board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Nalco common stock should vote or make any election with respect to the merger or any other matter. Goldman Sachs' opinion was approved by a fairness committee of Goldman, Sachs & Co.
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Material U.S. Federal Income Tax Consequences of the Merger (see page 148)
As a condition to the completion of the merger, each of Baker & McKenzie LLP, tax counsel to Ecolab, and Cravath, Swaine & Moore LLP, tax counsel to Nalco, must have delivered an opinion, dated the closing date of the merger, to the effect that the merger will be treated as a reorganization for U.S. federal income tax purposes within the meaning of Section 368(a) of the Code and that each of Ecolab, Merger Subsidiary and Nalco will be a party to such reorganization. Baker & McKenzie LLP and Cravath, Swaine & Moore LLP each is of the opinion that, subject to the limitations and more detailed discussion set forth below in the section titled "Material U.S. Federal Income Tax Consequences of the Merger," the material U.S. federal income tax consequences of the merger are as follows. The consequences of the merger to a U.S. holder (defined below in the section titled "Material U.S. Federal Income Tax Consequences of the Merger") will depend on the relative mix of cash and Ecolab common stock received by such U.S. holder. A U.S. holder who exchanges all of its shares of Nalco common stock solely for shares of Ecolab common stock pursuant to the merger will not recognize gain or loss in connection with such exchange, except with respect to cash received in lieu of fractional shares of Ecolab common stock. A U.S. holder who exchanges all of its shares of Nalco common stock solely for cash pursuant to the merger will recognize gain or loss equal to the difference between the amount of cash received by such U.S. holder and the U.S. holder's adjusted tax basis in the Nalco common stock exchanged therefor. A U.S. holder who exchanges shares of Nalco common stock for a combination of Ecolab common stock and cash pursuant to the merger will recognize gain (but not loss), but the U.S. holder's taxable gain in that case will not exceed the cash received in the merger.
The tax opinions regarding the merger will not address any state, local or foreign tax consequences of the merger. The opinions will assume that the merger will be completed according to the terms of the merger agreement and that the parties will report the transactions in a manner consistent with the opinions. The opinions will rely on the facts as stated in the merger agreement, the Registration Statement on Form S-4 (of which this joint proxy statement/prospectus is a part) and certain other documents. In rendering the tax opinions, each counsel will require and rely on representations of Ecolab, Merger Subsidiary, Nalco and their affiliates, to be delivered at the time of closing (and will assume that any such representation that is qualified by belief, knowledge or materiality is true, correct and complete without such qualification). If any such assumption or representation is or becomes inaccurate, the U.S. federal income tax consequences of the merger could be adversely affected. The opinions will be based on statutory, regulatory and judicial authority existing as of the date of the opinions, any of which may be changed at any time with retroactive effect.
An opinion of counsel represents such counsel's best legal judgment but is not binding on the Internal Revenue Service, or IRS, or on any court. Neither Ecolab nor Nalco intends to request any ruling from the IRS as to the U.S. federal income tax consequences of the merger. Consequently, no assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences set forth in this joint proxy statement/prospectus or any of the tax consequences described in the tax opinions.
You should consult your own tax advisor regarding the particular consequences to you of the merger.
Interests of Ecolab Directors and Executive Officers in the Merger (see page 110)
In considering the recommendation of the Ecolab board of directors that Ecolab stockholders vote to approve the share issuance proposal, you should be aware that some of Ecolab's directors and executive officers have financial interests in the merger that may be different from, or in addition to, those of Ecolab stockholders generally. It is expected that all of the current directors of Ecolab will continue as members of the Ecolab board of directors following the merger. It is also expected that
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most of Ecolab's executive officers will remain executive officers of the combined company following completion of the merger. The board of directors of Ecolab was aware of and considered these potential interests, among other matters, in evaluating and negotiating the merger agreement and the merger, in approving the merger agreement and in recommending the approval of the share issuance proposal, the additional share authorization proposal and the Ecolab adjournment proposal.
Ecolab's directors and executive officers will not receive any special compensation the payment of which is contingent upon completion of the merger. Certain of Ecolab's executive officers may receive compensation under Ecolab's executive compensation programs attributable to additional responsibilities in connection with the merger and subsequent integration process. Ecolab's director and executive compensation programs are described in further detail in Ecolab's Proxy Statement on Schedule 14A, filed with the SEC on March 18, 2011 and incorporated herein by reference. Please see the section titled "The MergerInterests of Ecolab Directors and Executive Officers in the Merger" beginning on page 110 for additional information about these interests.
Interests of Nalco Directors and Executive Officers in the Merger (see page 111)
In considering the recommendation of the Nalco board of directors that Nalco stockholders vote to approve the merger proposal, you should be aware that certain of Nalco's directors and executive officers have financial interests in the merger that may be different from, or are in addition to, the interests of Nalco's stockholders generally. The members of the Nalco board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the Nalco stockholders that they approve the merger proposal. These interests include, among other things, (i) the accelerated vesting of the Director RSUs and of certain Nalco stock options, Time-Vesting RSUs and Performance-Vesting RSUs, (ii) the receipt of certain payments and benefits under the executive officers' change of control or severance agreements, (iii) the distribution of certain accrued and unpaid benefits under Nalco's non-qualified deferred compensation plans held in a rabbi trust and (iv) the right to indemnification and directors' and officers' liability insurance that will survive completion of the merger. Assuming the consummation of the merger occurred on November 15, 2011, and the employment of each of Nalco's executive officers was terminated by the combined company without cause or by the executive officer for good reason on such date, and using a price of $36.28 per share of Nalco common stock as required by SEC rules in respect of equity award values, the value of the payments and benefits to Nalco's executive officers and directors in respect of items (i), and (ii) in the preceding sentence is approximately $25,427,725, $5,255,863, $6,575,828, $5,165,092, $4,799,704, $0, $1,972,310, $2,419,917 and $5,494,060 for Mr. Fyrwald, Ms. Mikells, Messrs. Flitman, Johnson, Melin, Bell, Ms. Kaufmann, Dr. Ramesh and Mr. Taylor, respectively, and approximately $209,626 for each of Nalco's non-employee directors, and the value of the payments to Nalco's executive officers in respect of item (iii) in the preceding sentence, all of which are fully-vested, is approximately $244,643, $73,192, $72,091, $62,818, $209,767, $561,268, $519,252 and $29,596 for Messrs. Fyrwald, Flitman, Johnson, Melin, Bell, Ms. Kaufmann, Dr. Ramesh and Mr. Taylor, respectively. In addition, the merger agreement provides that at the effective time of the merger, three of the current Nalco directors will be added to the Ecolab board of directors. The merger agreement further provides that Nalco will select three of its current directors for the positions on the Ecolab board of directors, with one director assigned to each of the three director classes under Ecolab's classified board of directors, subject to acceptance by Ecolab in accordance with its regular corporate governance procedures, which include a review of the qualifications and fit of the nominee, as well as potential conflicts of interest and similar considerations. In addition, It is also expected that, upon completion of the merger, Erik Fyrwald, Nalco's chairman, president and chief executive officer, will become the president of Ecolab and will continue to oversee the former Nalco business operations. It is also expected that certain other members of Nalco's senior management will become members of the senior management of the combined company after the merger. Please see the section titled "The MergerInterests of Nalco Directors and
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Executive Officers in the Merger" beginning on page 111 for additional information about these interests and quantification of the above amounts.
Board of Directors and Management Following the Merger (see page 122)
The merger agreement provides that at the effective time of the merger, three of the current Nalco directors will be added to the Ecolab board of directors. The merger agreement further provides that Nalco will select three of its current directors for the positions on the Ecolab board of directors, with one director assigned to each of the three director classes under Ecolab's classified board of directors, subject to acceptance by Ecolab in accordance with its regular corporate governance procedures, which include a review of the qualifications and fit of the nominee, as well as potential conflicts of interest and similar considerations.
Ecolab expects that, upon completion of the merger, Erik Fyrwald, Nalco's chairman, president and chief executive officer, will become the president of Ecolab and will continue to oversee the former Nalco business operations. Ecolab also expects that certain other members of Nalco's senior management will become members of the senior management of the combined company after the merger.
Expected Timing of the Merger
Ecolab and Nalco currently expect the closing of the merger to occur in the fourth quarter of 2011. However, the merger is subject to various regulatory clearances and the satisfaction or waiver of other conditions as described in the merger agreement, and it is possible that factors outside the control of Ecolab and Nalco could result in the merger being completed at a later time or not at all.
Financing for the Merger
On September 8, 2011, Ecolab announced that it had arranged new syndicated credit facilities totaling $3.5 billion. Ecolab expects to fund the cash component of the merger consideration and refinance Nalco's existing credit facility (collectively, approximately $2.8 billion) upon completion of the merger through commercial paper borrowings backed by its new syndicated credit facilities, or by borrowings under such facilities, and through the planned issuance prior to the completion of the merger of $500 million of private placement notes. Ecolab also expects to refinance a substantial portion of Nalco's other outstanding debt (currently estimated at approximately $1.7 billion) following completion of the merger. Ecolab currently expects to borrow the amounts required to refinance Nalco's other outstanding debt through commercial paper borrowings backed by its syndicated credit facilities, borrowings under such credit facilities, the issuance of publicly or privately held debt securities or a combination of the foregoing. The receipt of additional financing by Ecolab is not a condition to completion of the merger.
Regulatory Clearances Required for the Merger (see page 123)
Ecolab and Nalco have each agreed to take actions in order to obtain the regulatory clearances required to consummate the merger.
Regulatory clearance includes expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder, which we refer to as the HSR Act, following required notifications and review by the Federal Trade Commission or the Antitrust Division of the U.S. Department of Justice. On August 17, 2011, each of Ecolab and Nalco filed its notification under the HSR Act. On August 26, 2011, the Federal Trade Commission notified Ecolab and Nalco of the early termination of the waiting period under the HSR Act.
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Ecolab and Nalco each conduct business in Member States of the European Union, which we refer to as the EU. The merger has an EU dimension and falls within the scope of the EU Merger Regulation 139/2004, which we refer to as the EUMR. As a result, Ecolab and Nalco are required to make a merger notification to the European Commission. At the end of August 2011, Ecolab initiated contact with the European Commission and, on October 4, 2011, Ecolab submitted its formal notification to the European Commission. The European Commission review process determines whether the proposed merger is compatible with the European internal market. If, following a preliminary Phase I investigation of 25 working days (which may be extended in certain circumstances), the European Commission determines that the merger does not significantly impede effective competition in the internal market (or in a substantial part of it), it will be declared compatible with the internal market. Absent an in-depth Phase II investigation, the review period under the EUMR is expected to expire on November 10, 2011.
Ecolab and Nalco have also submitted notifications with competition authorities in other jurisdictions, including Australia, Canada, China, Colombia, Mexico, Russia, South Korea and Turkey. We have received clearances without imposed conditions from South Korea, Canada, Turkey, and Mexico. While Ecolab and Nalco expect to obtain all required regulatory clearances, we cannot assure you that these regulatory clearances will be obtained or that the granting of these regulatory clearances will not involve the imposition of additional conditions on the completion of the merger, including the requirement to divest assets, or require changes to the terms of the merger agreement. These conditions or changes could result in the conditions to the merger not being satisfied.
Conditions to Completion of the Merger (see page 141)
Ecolab and Nalco's obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:
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In addition, the obligations of Ecolab and Merger Subsidiary to complete the merger are subject to the satisfaction or waiver of the following conditions:
25
In addition, the obligation of Nalco to complete the merger is subject to the satisfaction or waiver of the following conditions:
No Solicitations of Other Offers (see page 138)
The merger agreement precludes Ecolab and Nalco from soliciting or engaging in discussions or negotiations with a third party with respect to a proposal for a competing transaction, including the acquisition of a significant interest in Ecolab's or Nalco's common stock or assets. However, if Ecolab or Nalco receives an unsolicited written proposal from a third party for a competing transaction that Ecolab's or Nalco's board of directors, as applicable, among other things, determines in good faith after consultation with its financial and legal advisors (i) constitutes or could reasonably be expected to result in a proposal that is superior to the merger and (ii) the failure to enter discussions regarding such proposal would be inconsistent with its fiduciary duties to stockholders under applicable law, Ecolab or Nalco, as applicable, may, subject to entering into a confidentiality agreement, furnish non-public information to and enter into discussions with, and only with, that third party regarding such competing transaction.
Ecolab may terminate the merger agreement if Ecolab's board of directors withdraws its recommendation that Ecolab's stockholders approve the share issuance proposal in order to permit Ecolab to enter into a definitive written agreement providing for an unsolicited superior acquisition proposal concurrently with or immediately following the termination of the merger agreement. Termination of the merger agreement under these circumstances is not effective unless Ecolab has paid a $275 million termination fee to Nalco, as described below.
Nalco may terminate the merger agreement if Nalco's board of directors withdraws its recommendation that Nalco's stockholders approve the merger proposal in order to permit Nalco to
26
enter into a definitive written agreement providing for an unsolicited superior acquisition proposal concurrently with or immediately following the termination of the merger agreement. Termination of the merger agreement under these circumstances is not effective unless Nalco has paid a $135 million termination fee to Ecolab, as described below.
Termination of the Merger Agreement (see page 143)
Ecolab and Nalco may mutually agree to terminate the merger agreement at any time. Either Ecolab or Nalco may also terminate the merger agreement if the merger is not consummated by March 1, 2012, provided that the terminating party is not then in material breach of its obligations under the merger agreement. See the section titled "The Merger AgreementTermination of the Merger Agreement" for a discussion of this and other rights of each of Ecolab and Nalco to terminate the merger agreement.
Termination Fees and Expense Reimbursement Obligations (see page 145)
Generally, all fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses. The merger agreement, however, provides for certain specific exceptions where Nalco may be required to pay a termination fee of $135 million, Ecolab may be required to pay a termination fee of $275 million and each party may be obligated to reimburse up to $8 million in transaction expenses reasonably incurred by the other party in connection with the merger agreement.
The merger agreement requires Nalco to pay a termination fee of $135 million to Ecolab if the merger agreement is terminated under the following circumstances:
The merger agreement requires Ecolab to pay a termination fee of $275 million to Nalco if the merger agreement is terminated under the following circumstances:
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as a result of the failure of the Ecolab board of directors to reaffirm its recommendation when required to do so in accordance with the merger agreement;
See the section titled "The Merger AgreementTermination Fees and Expense Reimbursement Obligations" for additional information on the circumstances under which such termination fee and expense reimbursement obligations may apply.
Accounting Treatment (see page 152)
Ecolab prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which we refer to as GAAP. The merger will be accounted for using the acquisition method of accounting. Ecolab will be treated as the acquirer in the merger for accounting purposes.
Appraisal Rights (see page 180)
Pursuant to Section 262, Nalco stockholders who do not vote in favor of the merger and who comply with the applicable requirements of Section 262 may have the right to seek appraisal of the fair value of such shares as determined by the Delaware Court of Chancery if the merger is completed. It is possible that the fair value as determined by the Delaware Court of Chancery may be more or less than, or the same as, the merger consideration.
Under Delaware law, appraisal rights are only available if, among other things, stockholders are required to accept cash for their shares (other than cash in lieu of fractional shares). Therefore, with respect to any shares of Nalco common stock that have not been surrendered for payment for which you would be required under the merger agreement to receive cash merger consideration (other than cash in lieu of fractional shares of Ecolab common stock), you may have the right, if you do not vote in favor of the merger agreement, do not surrender your shares for payment of the merger consideration, and otherwise comply with Section 262, in lieu of receiving the cash merger consideration for those shares, to obtain payment in cash for the fair value of those shares as determined by the Delaware Court of Chancery. Merger Subsidiary reserves the right to take the position that appraisal may only be sought with respect to shares described in the two preceding sentences of this paragraph, and may not be exercised with respect to any shares as to which stock was received.
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Whether or not a stockholder will be required to accept cash for their shares in the merger will not be known until after the vote on the merger. However, stockholders who wish to preserve any appraisal rights they may have must so advise Nalco prior to the vote on the merger. In addition to submitting a demand for appraisal, in order to preserve any appraisal rights you may have, you must not vote in favor of the merger agreement, must not surrender your shares for payment of the merger consideration, and must otherwise follow the procedures prescribed by Section 262. In view of the complexity of Section 262, Nalco stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors. For a summary of the material provisions of Section 262 required to be followed by Nalco stockholders wishing to demand and perfect appraisal rights, please read the section titled "The MergerAppraisal Rights" beginning on page 124 and "Appraisal Rights" beginning on page 180.
Comparative Rights of Ecolab and Nalco Stockholders (see page 169)
Nalco stockholders receiving shares of Ecolab common stock in the merger will have different rights once they become stockholders of Ecolab due to differences between the governing corporate documents of Nalco and the governing corporate documents of Ecolab. These differences are described in detail under the section titled "Comparative Rights of Ecolab and Nalco Stockholders" beginning on page 169.
Listing of Ecolab Common Stock; De-Listing and Deregistration of Nalco Common Stock (see page 124)
It is a condition to the completion of the merger that the shares of Ecolab common stock to be issued to Nalco stockholders pursuant to the merger be authorized for listing on the NYSE at the effective time of the merger, subject to official notice of issuance. Presently, Ecolab intends to issue treasury shares previously authorized for listing on the NYSE to Nalco stockholders. Accordingly, no further action may be required to authorize shares to be issued for listing on the NYSE. Upon completion of the merger, shares of Nalco common stock currently listed on the NYSE will cease to be listed on the NYSE and will be subsequently deregistered under the Exchange Act.
The Ecolab Special Meeting (see page 56)
The special meeting of Ecolab stockholders will be held at the Ecolab Corporate Center, 370 Wabasha Street, North, St. Paul, Minnesota 55102 on , 2011, at , local time. At the Ecolab special meeting, you will be asked to:
You may vote at the Ecolab special meeting if you owned shares of Ecolab common stock at the close of business on , 2011, the record date for the special meeting. You may cast one vote for each share of Ecolab common stock that you owned as of the record date.
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The share issuance proposal and Ecolab adjournment proposal each require approval by a majority of the total votes cast at the Ecolab special meeting by the holders of shares of Ecolab common stock present in person or represented by proxy and entitled to vote on that proposal. Under applicable NYSE rules, the total votes cast (whether for, against or abstain) on the share issuance proposal must also represent a majority of the shares of Ecolab common stock issued and outstanding as of the Ecolab record date. Votes to abstain are treated the same as votes "AGAINST" these proposals. Failures to vote and broker non-votes will have no effect on either proposal, assuming a quorum is present.
Approval of the additional share authorization proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Ecolab common stock entitled to vote on the proposal. Failures to vote, votes to abstain and broker non-votes will have the effect of a vote "AGAINST" the proposal.
As of the close of business on , 2011, the record date for the Ecolab special meeting, there were shares of Ecolab common stock outstanding and entitled to vote. As of the record date, Ecolab's directors, executive officers and their affiliates held and were entitled to vote approximately shares of Ecolab common stock, representing approximately % of Ecolab's outstanding shares of common stock. Ecolab currently expects that all directors and executive officers will vote their shares in favor of each of the proposals to be considered at the Ecolab special meeting, although none of them has entered into any agreement obligating them to do so.
The Nalco Special Meeting (see page 63)
The special meeting of Nalco stockholders will be held at the Nalco Company Corporate Offices at 1601 West Diehl Road, Naperville, Illinois, 60563-1198 on , 2011, at , local time. At the Nalco special meeting, you will be asked to:
Only holders of record of issued and outstanding shares of Nalco common stock as of the close of business on , 2011, the record date for the Nalco special meeting, are entitled to notice of, and to vote at, the Nalco special meeting or any adjournment or postponement of the Nalco special meeting. You may cast one vote for each share of Nalco common stock that you owned as of that record date.
Approval of the merger proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock entitled to vote on the proposal. Failures to vote, votes to abstain and broker non-votes will have the effect of a vote "AGAINST" the proposal.
The compensation proposal and Nalco adjournment proposal each require the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock present in person or represented by proxy at the Nalco special meeting and entitled to vote on that proposal. Votes to abstain are treated the same as votes "AGAINST" these proposals. Broker non-votes and failures to vote will have no effect on either proposal, assuming a quorum is present.
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As of the close of business on , 2011, the record date for the Nalco special meeting, there were shares of Nalco common stock outstanding and entitled to vote. As of the record date, Nalco's directors, executive officers and their affiliates held and were entitled to vote approximately shares of Nalco common stock, representing approximately % of Nalco's outstanding shares of common stock. Nalco currently expects that all directors and executive officers will vote their shares in favor of each of the proposals to be considered at the Nalco special meeting, although none of them has entered into any agreement obligating them to do so.
Other Proposals to be Considered at the Special Meetings
In addition to the merger proposal and the share issuance proposal, both of which are conditions to completion of the merger and are described elsewhere in this joint proxy statement/prospectus, Nalco stockholders will be asked to consider and vote on the compensation proposal at the Nalco special meeting and Ecolab stockholders will be asked to consider and vote on the additional share authorization proposal at the Ecolab special meeting. Approval of these additional proposals at the special meetings is not a condition to the obligation of either Ecolab or Nalco to consummate the merger. Accordingly, if all of the conditions to the merger set forth in the merger agreement are satisfied or waived, Ecolab and Nalco intend to complete the merger whether or not these additional proposals are approved by their respective stockholders.
Proposal to Authorize Additional Shares of Ecolab Common Stock (see page 185)
The Ecolab board of directors has unanimously determined that it is advisable and in the best interests of Ecolab and its stockholders for Ecolab's restated certificate of incorporation to be amended promptly following consummation of the merger to increase the number of authorized shares of Ecolab common stock from 400,000,000 to 800,000,000 shares. Upon approval of this proposal by Ecolab stockholders, Ecolab would be authorized to amend Article III of its restated certificate of incorporation as set forth in Annex E to this joint proxy statement/prospectus. Except for the foregoing amendment, the other terms and provisions of Ecolab's restated certificate of incorporation would remain unchanged.
As of 2011, the record date for the Ecolab special meeting, 400,000,000 shares of Ecolab common stock were authorized, of which shares were issued and outstanding and shares were reserved for issuance pursuant to Ecolab equity compensation plans and individual equity award agreements. Upon consummation of the merger, Ecolab will issue approximately shares of Ecolab common stock to the holders of Nalco common stock pursuant to the terms of the merger agreement, and will be required to reserve approximately additional shares of Ecolab common stock in connection with Nalco equity compensation plans and individual award agreements assumed by Ecolab in connection with the merger. Accordingly, although Ecolab has available a sufficient number of authorized and unissued shares to complete the merger, Ecolab after the merger will have only approximately authorized and unissued shares of common stock.
If this proposal is approved by Ecolab's stockholders, following completion of the merger 400,000,000 additional shares of Ecolab common stock will be available for future issuance or sale upon authorization by the Ecolab board of directors without further stockholder approval. The Ecolab board of directors believes that the additional authorized common stock would give Ecolab greater flexibility by allowing Ecolab to issue shares of Ecolab common stock without the expense and delay of convening a stockholders meeting to authorize additional shares if and when the need arises. Ecolab currently has no plans for the issuance of additional shares of its common stock, other than future issuances pursuant to its equity compensation plans and related agreements in the ordinary course of business. The Ecolab board of directors has determined, however, that securing stockholder approval for additional authorized shares of Ecolab common stock is appropriate in order to provide the company with the
31
flexibility to consider possible actions that might require the future issuance of additional shares of common stock.
Nalco Non-binding, Advisory Proposal to Approve Certain Compensation (see page 187)
In accordance with Section 14A of the Exchange Act, Nalco is providing its stockholders with the opportunity to cast a non-binding advisory vote on the compensation that may be payable to its named executive officers in connection with the merger as described in the table titled "Potential Change of Control Payments to Named Executive Officers" on page 118. The Nalco board of directors unanimously recommends that you vote "FOR" the non-binding, advisory proposal to approve the compensation that may become payable to Nalco's named executive officers in connection with the completion of the merger.
Ecolab Share Repurchase Program
On September 6, 2011, Ecolab announced a $1.0 billion share repurchase program, contingent upon the closing of the merger, which is expected to be completed by the end of 2012. The funds required to complete the share repurchase program are expected to come, in whole or in part, from debt financing to be arranged after the completion of the merger.
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Selected Historical Financial Information
The following selected historical financial information is being provided to assist you in your analysis of the financial aspects of the merger. The Ecolab annual historical financial information is derived from the audited consolidated financial statements of Ecolab as of and for each of the years in the five-year period ended December 31, 2010. The Nalco annual historical financial information is derived from the audited consolidated financial statements of Nalco as of and for each of the years in the five-year period ended December 31, 2010. The historical financial information as of and for the six months ended June 30, 2011 and 2010 has been derived from unaudited interim consolidated financial statements of both Ecolab and Nalco and, in the opinion of each company's management, includes all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the interim period. The information is only a summary and should be read in conjunction with each company's historical consolidated financial statements and related notes contained in the Ecolab and Nalco annual reports on Form 10-K for the year ended December 31, 2010 and quarterly reports on Form 10-Q for the period ended June 30, 2011, which have been incorporated by reference in this joint proxy statement/prospectus, as well as other information that has been filed by Ecolab and Nalco with the SEC. See "Where You Can Find More Information" beginning on page 192 for information on where you can obtain copies of this information. The historical results included below and elsewhere in this joint proxy statement/prospectus are not necessarily indicative of the future performance of Ecolab, Nalco or the combined company.
Ecolab Selected Historical Financial Information
|
Six Months Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
($ in millions, except per share data) |
||||||||||||||||||||||
Income Statement Data |
|||||||||||||||||||||||
Net sales |
$ | 3,217.1 | $ | 2,952.3 | $ | 6,089.7 | $ | 5,900.6 | $ | 6,137.5 | $ | 5,469.6 | $ | 4,895.8 | |||||||||
Operating income(1)(2)(3)(4)(5) |
350.0 | 358.1 | 806.8 | 681.3 | 712.8 | 669.0 | 613.0 | ||||||||||||||||
Net income attributable to Ecolab(1)(2)(3)(4)(5)(6) |
219.5 | 224.8 | 530.3 | 417.3 | 448.1 | 427.2 | 368.6 | ||||||||||||||||
Earnings attributable to Ecolab per common share(1)(2)(3)(4)(5)(6) |
|||||||||||||||||||||||
Basic |
0.95 | 0.96 | 2.27 | 1.76 | 1.83 | 1.73 | 1.46 | ||||||||||||||||
Diluted |
0.93 | 0.94 | 2.23 | 1.74 | 1.80 | 1.70 | 1.43 | ||||||||||||||||
Dividends declared per common share |
0.3500 | 0.3100 | 0.6400 | 0.5750 | 0.5300 | 0.4750 | 0.4150 | ||||||||||||||||
Weighted average common shares outstanding |
|||||||||||||||||||||||
Basic |
231.8 | 234.4 | 233.4 | 236.7 | 245.4 | 246.8 | 252.1 | ||||||||||||||||
Diluted |
236.2 | 238.1 | 237.6 | 239.9 | 249.3 | 251.8 | 257.1 |
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|
June 30, | December 31, | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
($ in millions) |
|||||||||||||||||||||
Balance Sheet Data |
||||||||||||||||||||||
Total assets |
$ | 5,407.4 | $ | 4,663.8 | $ | 4,872.2 | $ | 5,020.9 | $ | 4,756.9 | $ | 4,722.8 | $ | 4,419.4 | ||||||||
Long-term debt |
703.3 | 637.0 | 656.4 | 868.8 | 799.3 | 599.9 | 557.1 | |||||||||||||||
Total liabilities |
3,065.0 | 2,802.2 | 2,739.2 | 3,011.3 | 3,177.9 | 2,779.9 | 2,732.8 | |||||||||||||||
Total equity |
2,342.4 | 1,861.6 | 2,133.0 | 2,009.6 | 1,579.0 | 1,942.9 | 1,686.6 | |||||||||||||||
Total liabilities and equity |
5,407.4 | 4,663.8 | 4,872.2 | 5,020.9 | 4,756.9 | 4,722.8 | 4,419.4 |
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Nalco Selected Historical Financial Information
|
Six Months Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
($ in millions, except per share data) |
||||||||||||||||||||||
Statement of Operations Data |
|||||||||||||||||||||||
Net sales(1) |
$ | 2,237.0 | $ | 2,043.2 | $ | 4,250.5 | $ | 3,746.8 | $ | 4,212.4 | $ | 3,912.5 | $ | 3,602.6 | |||||||||
Operating earnings (loss)(1)(2)(3)(4)(5) |
367.2 | 278.1 | 577.7 | 403.9 | (12.2 | ) | 476.2 | 433.0 | |||||||||||||||
Net earnings (loss) attributable to Nalco Holding Company(1)(2)(3)(4)(5)(6)(7)(8) |
175.8 | 81.9 | 196.2 | 60.5 | (342.6 | ) | 129.0 | 98.9 | |||||||||||||||
Net earnings (loss) attributable to Nalco Holding Company per common share(1)(2)(3)(4)(5)(6)(7)(8) |
|||||||||||||||||||||||
Basic |
$ | 1.27 | $ | 0.59 | $ | 1.42 | $ | 0.44 | $ | (2.44 | ) | $ | 0.90 | $ | 0.69 | ||||||||
Diluted |
$ | 1.26 | $ | 0.59 | $ | 1.41 | $ | 0.44 | $ | (2.44 | ) | $ | 0.88 | $ | 0.67 | ||||||||
Weighted average common shares outstanding (in millions) |
|||||||||||||||||||||||
Basic |
138.8 | 138.3 | 138.3 | 138.2 | 140.1 | 143.2 | 143.0 | ||||||||||||||||
Diluted |
139.9 | 139.2 | 139.4 | 138.6 | 140.1 | 146.7 | 146.7 | ||||||||||||||||
Cash dividends declared per share |
$ | 0.07 | $ | 0.07 | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.14 | |
|
June 30, | December 31, | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2011 | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
($ in millions) |
|||||||||||||||||||||
Balance Sheet Data |
||||||||||||||||||||||
Total assets |
$ | 5,444.2 | $ | 4,996.7 | $ | 5,223.7 | $ | 4,964.8 | $ | 5,042.0 | $ | 5,978.6 | $ | 5,656.5 | ||||||||
Long-term debt |
2,665.5 | 2,732.7 | 2,782.0 | 2,714.3 | 3,129.6 | 3,193.7 | 3,038.6 | |||||||||||||||
Total liabilities |
4,464.2 | 4,503.7 | 4,496.2 | 4,473.2 | 4,629.3 | 4,844.1 | 4,753.0 | |||||||||||||||
Total equity |
980.0 | 493.0 | 727.5 | 491.6 | 412.7 | 1,134.5 | 903.5 | |||||||||||||||
Total liabilities and equity |
5,444.2 | 4,996.7 | 5,223.7 | 4,964.8 | 5,042.0 | 5,978.6 | 5,656.5 |
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in the six months ended June 30, 2011 and 2010, respectively, and $0.02, $0.29, $0.17, $0.08 and $0.04 in the years ended December 31, 2010, 2009, 2008, 2007 and 2006, respectively.
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Summary Unaudited Pro Forma Condensed Combined Financial Information of Ecolab and Nalco
The following table presents selected unaudited pro forma condensed combined financial information about Ecolab's consolidated balance sheet and statements of income, after giving effect to the merger with Nalco. The information under "Unaudited Statement of Income Data" in the table below gives effect to the merger as if it had been consummated on January 1, 2010, the beginning of the earliest period presented. The information under "Unaudited Balance Sheet Data" in the table below assumes the merger had been consummated on June 30, 2011. This unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting with Ecolab considered the acquirer of Nalco. See "Accounting Treatment" beginning on page 152.
In addition, the unaudited pro forma condensed combined financial information includes adjustments which are preliminary and may be revised. There can be no assurance that such revisions will not result in material changes. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company.
The information presented below should be read in conjunction with the historical consolidated financial statements of Ecolab and Nalco, including the related notes, filed by each of them with the SEC, and with the unaudited pro forma condensed combined financial statements of Ecolab and Nalco, including the related notes, appearing elsewhere in this joint proxy statement/prospectus. See "Where You Can Find More Information" beginning on page 192 and "Unaudited Pro Forma Condensed Combined Financial Information" beginning on page 153. The unaudited pro forma condensed combined financial information is not necessarily indicative of results that actually would have occurred or that may occur in the future had the merger been completed on the dates indicated.
Unaudited Statement of Income Data
|
Six Months Ended June 30, 2011 |
Year Ended December 31, 2010 |
|||||
---|---|---|---|---|---|---|---|
|
($ in millions, except per share data) |
||||||
Operating revenue |
$ | 5,454.1 | $ | 10,340.2 | |||
Operating expenses |
4,810.8 | 9,109.5 | |||||
Earnings from operations |
643.3 | 1,230.7 | |||||
Earnings before income taxes and equity in earnings of affiliates |
529.3 | 969.4 | |||||
Provision for income taxes |
171.3 | 294.2 | |||||
Net income |
$ | 353.6 | $ | 668.9 | |||
Earnings per share, basic |
$ | 1.18 | $ | 2.22 | |||
Earnings per share, diluted |
$ | 1.16 | $ | 2.17 |
Unaudited Balance Sheet Data
|
|
June 30, 2011 | |||||
---|---|---|---|---|---|---|---|
|
|
($ in millions) |
|||||
Unrestricted cash, cash equivalents and short-term investments |
$ | 292.0 | |||||
Total assets |
16,415.1 | ||||||
Long-term debt and capital lease obligations, excluding current portion |
5,073.3 | ||||||
Stockholders' equity |
5,854.2 |
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Unaudited Comparative Per Share Data
Presented below are Ecolab's and Nalco's historical per share data for the six months ended June 30, 2011 and the year ended December 31, 2010 and unaudited pro forma combined per share data for the six months ended June 30, 2011 and the year ended December 31, 2010. This information should be read together with the consolidated financial statements and related notes of Ecolab and Nalco that are incorporated by reference in this joint proxy statement/prospectus and with the unaudited pro forma condensed combined financial information included under "Unaudited Pro Forma Condensed Combined Financial Information" beginning on page 153. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company. The historical book value per share is computed by dividing total stockholders' equity by the number of shares of common stock outstanding at the end of the period. The pro forma income per share of the combined company is computed by dividing the pro forma income by the pro forma weighted average number of shares outstanding. The pro forma book value per share of the combined company is computed by dividing total pro forma stockholders' equity by the pro forma number of shares of common stock outstanding at the end of the period. The Nalco unaudited pro forma equivalent per share financial information is computed by multiplying the Ecolab unaudited pro forma combined per share amounts by the exchange ratio (0.7005 shares of Ecolab common stock for each share of Nalco common stock). The Nalco pro forma equivalent per share amounts assume each Nalco stockholder receives merger consideration only in the form of Ecolab common stock. This presentation portrays the equivalent pro forma earnings, dividends and book value per share for one share of Nalco common stock.
EcolabHistorical
|
Six Months Ended June 30, 2011 |
Year Ended December 31, 2010 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Earnings per share: |
|||||||||
Basic |
$ | 0.95 | $ | 2.27 | |||||
Diluted |
0.93 | 2.23 | |||||||
Dividends declared per common stock |
0.35 | 0.64 | |||||||
Book value per share of common stock |
10.08 | 9.16 |
NalcoHistorical
|
Six Months Ended June 30, 2011 |
Year Ended December 31, 2010 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Earnings per share: |
|||||||||
Basic |
$ | 1.27 | $ | 1.42 | |||||
Diluted |
1.26 | 1.41 | |||||||
Dividends declared per common stock |
0.07 | 0.14 | |||||||
Book value per share of common stock |
6.84 | 5.04 |
EcolabUnaudited pro forma combined amounts
|
Six Months Ended June 30, 2011 |
Year Ended December 31, 2010 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Earnings per share: |
|||||||||
Basic |
$ | 1.18 | $ | 2.22 | |||||
Diluted |
1.16 | 2.17 | |||||||
Dividends declared per common stock |
0.35 | 0.64 | |||||||
Pro forma book value per share of common stock(1) |
19.49 | N/A |
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NalcoUnaudited pro forma equivalent amounts
|
Six Months Ended June 30, 2011 |
Year Ended December 31, 2010 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Earnings per share: |
|||||||||
Basic |
$ | 0.83 | $ | 1.56 | |||||
Diluted |
0.81 | 1.52 | |||||||
Dividends declared per common stock |
0.25 | 0.45 | |||||||
Pro forma book value per share of common stock(1) |
13.65 | N/A |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements set forth or incorporated by reference in this joint proxy statement/prospectus concerning projections or expectations of financial or operational performance or economic outlook, or concerning other future events or results, or which refer to matters that are not historical facts, are "forward-looking statements" within the meaning of the federal securities laws. Similarly, statements that describe Ecolab's or Nalco's objectives, expectations, plans or goals are forward-looking statements. Words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "we believe," "we expect," "estimate," "project," "may," "will," "intend," "could," "should," "predict," "potentially," "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 statements regarding the expected benefits of the merger, integration plans and expected synergies, the expected timing of completion of the merger and anticipated future financial and operating performance and results, including estimates for growth, as well as any information concerning possible or assumed future results of operations of Ecolab and Nalco as set forth in the sections of this joint proxy statement/prospectus titled "SummarySummary Unaudited Pro Forma Condensed Combined Financial Information of Ecolab and Nalco," "The MergerEcolab's Reasons for the Merger; Recommendation of the Ecolab Board of Directors," "The MergerNalco's Reasons for the Merger; Recommendation of the Nalco Board of Directors," "The MergerOpinion of Ecolab's Financial Advisor," "The MergerOpinion of Nalco's Financial Advisor" and "Unaudited Pro Forma Condensed Combined Financial Information." In addition, the financial forecasts included in the section titled "The MergerCertain Financial Forecasts of Ecolab and Nalco" are forward-looking statements. Forward-looking statements also include statements regarding the expected benefits of the merger.
All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, many of which are generally outside the control of Ecolab and Nalco and are difficult to predict. These risks and uncertainties include those set forth under "Risk Factors," beginning on page 42, as well as risks and uncertainties related to:
For a further discussion of risks and uncertainties applicable to the respective businesses of Ecolab and Nalco, see the Annual Reports on Form 10-K of Ecolab and Nalco for the fiscal year ended
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December 31, 2010 as updated by subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, all of which were filed with the SEC and incorporated by reference in this joint proxy statement/prospectus.
We caution against placing undue reliance on forward-looking statements, which reflect our current beliefs and are based on information currently available to us as of the date a forward-looking statement is made. Forward-looking statements set forth or incorporated by reference herein speak only as of the date of this joint proxy statement/prospectus or the date of the document incorporated by reference in this joint proxy statement/prospectus, as the case may be. Except as required by law, we undertake no obligation to update publicly any of these forward-looking statements to reflect events or circumstances that may arise after the date hereof. In the event that we do update any forward-looking statements, no inference should be made that we will make additional updates with respect to that statement, related matters, or any other forward-looking statements. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant risk factors, may appear in Ecolab's or Nalco's public filings with the SEC, which are accessible at www.sec.gov, and which you are advised to consult. For additional information, please see the section titled "Where You Can Find More Information" beginning on page 192.
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In addition to the other information included and incorporated by reference in this joint proxy statement/prospectus, including the matters addressed in the section titled "Special Note Regarding Forward-Looking Statements," you should carefully consider the following risks before deciding whether to vote for the proposals to be considered at the Ecolab special meeting and the Nalco special meeting. In addition, you should read and consider the risks associated with each of the businesses of Ecolab and Nalco because these risks will also affect the combined company. These risks can be found in the Annual Reports on Form 10-K for the fiscal year ended December 31, 2010, and any amendments thereto, for each of Ecolab and Nalco, as such risks may be updated or supplemented in each company's subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, all of which are filed with the SEC and which are incorporated by reference in this joint proxy statement/prospectus. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference in this joint proxy statement/prospectus. See the section titled "Where You Can Find More Information" beginning on page 192.
Risk Factors Relating to the Merger
The merger and related transactions are subject to approval by the stockholders of both Ecolab and Nalco.
In order for the merger to be completed, Nalco stockholders must adopt the merger agreement, which requires the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock entitled to vote on the merger proposal. In addition, while a vote of Ecolab stockholders is not required to approve the merger, Ecolab stockholders approval is required under applicable NYSE rules in order for Ecolab to be authorized to issue shares of Ecolab common stock as part of the merger consideration. Approval of the issuance of shares of Ecolab common stock requires approval by a majority of the total votes cast at the Ecolab special meeting by the holders of shares of Ecolab common stock present in person or represented by proxy and entitled to vote on that proposal. Under applicable NYSE rules, the total votes cast (whether for, against or abstain) on the share issuance proposal must also represent a majority of the shares of Ecolab common stock issued and outstanding as of the Ecolab record date.
The merger is subject to the expiration or termination of waiting periods and receipt of clearances or approvals from various regulatory authorities, which may impose conditions that could have an adverse effect on Ecolab, Nalco or the combined company or, if not obtained, could prevent completion of the merger.
Before the merger may be completed, applicable waiting periods must expire or terminate under antitrust and competition laws and clearances or approvals must be obtained from various regulatory entities. There can be no assurance that all of these required consents, orders, approvals and clearances will be obtained. In deciding whether to grant antitrust or regulatory clearances, the relevant governmental entities will consider the effect of the merger on competition within their relevant jurisdiction. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined company's business. The merger agreement may require Ecolab and Nalco to comply with conditions imposed by regulatory entities and, in certain circumstances, either company may refuse to close the merger on the basis of those regulatory conditions. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the merger, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger. In addition, neither Ecolab nor Nalco can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the
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merger. For a more detailed description of the regulatory review process, please see the section titled "The MergerRegulatory Clearances Required for the Merger" beginning on page 123.
The exchange ratio is fixed and will not be adjusted in the event of any change in either Ecolab's or Nalco's stock price. Because the market price of Ecolab common stock may fluctuate, the market value of Ecolab common stock that Nalco stockholders will receive in the merger is uncertain.
In the merger, each share of Nalco common stock, other than shares owned by Ecolab, Nalco or any of their respective wholly-owned subsidiaries and shares in respect of which appraisal rights have been properly exercised and not withdrawn, will be converted into the right to receive at the election of the stockholder, subject to certain proration and reallocation procedures described below, either 0.7005 shares of Ecolab common stock or $38.80 in cash, without interest. Nalco stockholders will not receive any fractional shares of Ecolab common stock in the merger. Instead, they will receive cash in lieu of any fractional shares of Ecolab common stock.
The exchange ratio will not be adjusted for changes in the market price of either Ecolab common stock or Nalco common stock between the date of signing the merger agreement and completion of the merger. There will be a time lapse between the date on which Nalco stockholders vote on the merger agreement at the Nalco special meeting and the date on which Nalco stockholders entitled to receive shares of Ecolab common stock actually receive such shares. The market value of Ecolab common stock may fluctuate during this period. These fluctuations may be caused by changes in the businesses, operations, results and prospects of both Ecolab and Nalco, market expectations of the likelihood that the merger will be completed and the timing of the completion, the effect of any of the conditions or restrictions imposed on or proposed with respect to the merging parties by regulatory agencies, general market and economic conditions or other factors. These fluctuations in the market value of Ecolab common stock will cause the value represented by the exchange ratio to fluctuate as well. As a result, at the time Nalco stockholders cast their votes regarding the merger proposal and make their election in respect of the merger consideration to be paid to them, Nalco stockholders will not know the actual market value of the shares of Ecolab common stock they will receive after the merger is finally completed. The actual market value of shares of Ecolab common stock, when received by Nalco stockholders, will depend on the market value of those shares on that date.
Ecolab and Nalco stockholders are urged to obtain current market quotations for shares of Ecolab common stock and Nalco common stock.
Nalco stockholders may receive a combination of consideration different from that which they elect.
In the merger, Nalco stockholders may not receive the entirety of their merger consideration in the form which they have elected to receive. While each Nalco stockholder may elect to receive all cash or all Ecolab common stock for each of their shares of Nalco common stock in the merger, the pools of Ecolab common stock and cash available for all Nalco stockholders in the aggregate will be fixed so that approximately 70% of the issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive Ecolab common stock and approximately 30% of the issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive cash. Accordingly, depending on the elections made by other Nalco stockholders, each Nalco stockholder who elects to receive cash for all of their shares in the merger may receive a portion of their consideration in Ecolab common stock, and each Nalco stockholder who elects to receive Ecolab common stock for all of their shares in the merger may receive a portion of their consideration in cash. A Nalco stockholder who elects to receive a combination of cash and Ecolab common stock for their shares in the merger may receive cash and Ecolab common stock in a proportion different from what such stockholder elected. If a Nalco stockholder does not submit a properly completed and signed election form to the exchange agent by the election deadline, such stockholder will be deemed not to have made an election. If the closing
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Ecolab stock price is below $55.39, then any Nalco stockholder who has not made an election will be deemed to have made an election to receive cash. If the closing Ecolab stock price is above $55.39, then any Nalco stockholder who has not made an election will be deemed to have made an election to receive stock. If the closing Ecolab stock price is equal to $55.39, then any Nalco stockholder who has not made an election will receive Ecolab common stock or cash or a combination of both, as necessary to achieve the 70%/30% stock-cash mix as described above.
The tax consequences to a Nalco stockholder may change in the event such stockholder receives a larger or smaller portion of their merger consideration in cash than such stockholder elected. For additional information, please see the section titled "Material U.S. Federal Income Tax Consequences of the Merger" beginning on page 148.
Ecolab's and Nalco's directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Ecolab and Nalco stockholders generally.
Certain of the directors and executive officers of Ecolab and Nalco have interests in the merger that are different from, or in addition to, the interests of Ecolab and Nalco stockholders generally. With respect to Ecolab, these interests include:
With respect to Nalco, these interests include:
The Ecolab and Nalco boards of directors were aware of these interests at the time each approved the merger and the transactions contemplated by the merger agreement. These interests may cause Ecolab's and Nalco's directors and executive officers to view the proposals relating to the merger differently and more favorably than you may view them. For further information, see "The MergerInterests of Ecolab Directors and Executive Officers in the Merger" and "The MergerInterests of Nalco Directors and Executive Officers in the Merger" beginning on pages 110 and 111, respectively.
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Any delay in completing the merger may reduce or eliminate the benefits expected to be achieved thereunder.
In addition to the required stockholder approvals and the required regulatory clearances and approvals, the merger is subject to certain other conditions beyond Ecolab's and Nalco's control that may prevent, delay or otherwise materially adversely affect completion of the merger. We cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for satisfying such conditions could delay the completion of the merger for a significant period of time, reduce or eliminate some anticipated benefits of the merger or prevent the completion of the merger from occurring at all. For further information, see the section titled "The Merger AgreementConditions to Completion of the Merger" beginning on page 141.
The pendency of the merger could adversely affect the future business and operations of Ecolab and Nalco.
In connection with the pending merger, while it is not expected by the respective managements of Ecolab and Nalco, it is possible that some customers, suppliers and other persons with whom Ecolab or Nalco have a business relationship may delay or defer certain business decisions, which could negatively impact revenues, earnings and cash flows of Ecolab or Nalco, as well as the market prices of Ecolab common stock or Nalco common stock, regardless of whether the merger is completed.
Uncertainties associated with the merger may cause a loss of management personnel and other key employees which could adversely affect the future business and operations of the combined company.
Each of Ecolab and Nalco are dependent on the experience and industry knowledge of its officers and other key employees to execute their respective business plans. The combined company's success after the merger will depend in part upon the ability of Ecolab and Nalco to retain key management personnel and other key employees. Current and prospective employees of Ecolab and Nalco may experience uncertainty about their roles within the combined company following the merger, which may have an adverse effect on the ability of each of Ecolab and Nalco to attract or retain key management and other key personnel. Accordingly, no assurance can be given that the combined company will be able to attract or retain key management personnel and other key employees of Ecolab and Nalco to the same extent that Ecolab and Nalco have previously been able to attract or retain their own employees.
If the merger does not qualify as a reorganization under Section 368(a) of the Code, the stockholders of Nalco may be required to pay substantial U.S. federal income taxes and Nalco may be required to pay substantial corporate-level U.S. federal income taxes.
As a condition to the completion of the merger, each of Baker & McKenzie LLP, tax counsel to Ecolab, and Cravath, Swaine & Moore LLP, tax counsel to Nalco, must have delivered an opinion, dated the closing date of the merger, to the effect that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and that each of Ecolab, Merger Subsidiary and Nalco will be a party to such reorganization. The opinions will assume that the merger will be completed according to the terms of the merger agreement and that the parties will report the transactions in a manner consistent with the opinions. The opinions will rely on the facts as stated in the merger agreement, the Registration Statement on Form S-4 (of which this joint proxy statement/prospectus is a part) and certain other documents. In rendering the tax opinions, each counsel will require and rely on representations of Ecolab, Merger Subsidiary, Nalco and their affiliates, to be delivered at the time of closing (and will assume that any such representation that is qualified by belief, knowledge or materiality is true, correct and complete without such qualification). If any such assumption or representation is or becomes inaccurate, the U.S. federal income tax consequences of the merger could be adversely affected. The opinions will be based on statutory,
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regulatory and judicial authority existing as of the date of the opinions, any of which may be changed at any time with retroactive effect.
An opinion of counsel represents counsel's best legal judgment but is not binding on the IRS or on any court. Neither Ecolab nor Nalco intends to request any ruling from the IRS as to the U.S. federal income tax consequences of the merger. Consequently, no assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences set forth in this joint proxy statement/prospectus or any of the tax consequences described in the tax opinions. Although Baker & McKenzie LLP and Cravath, Swaine & Moore LLP are of the opinion that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code, it is possible that the IRS may assert that the merger fails to qualify as such. If the IRS were to be successful in any such contention, or if for any other reason the merger were to fail to qualify as a tax-free reorganization, then (i) each Nalco stockholder would recognize gain or loss with respect to all such stockholder's shares of Nalco common stock based on the difference between (A) the aggregate cash and the fair market value of the Ecolab common stock received and (B) that stockholder's tax basis in such shares and (ii) Nalco would recognize gain or loss with respect to all of its assets based on the difference between (A) the sum of the aggregate cash and the fair market value of the Ecolab common stock transferred pursuant to the merger and the liabilities deemed assumed by Merger Subsidiary for U.S. federal income tax purposes and (B) Nalco's aggregate tax basis in all of its assets. For additional information regarding the U.S. federal income tax consequences to Nalco stockholders, please see the section titled "Material U.S. Federal Income Tax Consequences of the Merger" beginning on page 148.
Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Ecolab and Nalco.
If the merger is not completed, the ongoing businesses of Ecolab and Nalco may be adversely affected, and Ecolab and Nalco will be subject to several risks, including the following:
If the merger is not completed, Ecolab and Nalco cannot assure their stockholders that these risks will not materialize and will not materially adversely affect the business, financial results and stock prices of Ecolab or Nalco.
The merger agreement contains provisions that could discourage potential competing acquirers of either Ecolab or Nalco.
The merger agreement contains "no shop" provisions that, subject to limited exceptions, restrict each of Ecolab's and Nalco's ability to, directly or indirectly, (i) solicit or knowingly facilitate or encourage any inquiry or the making or announcement of any third-party proposal for the acquisition of their company's stock or assets or that constitutes or that would reasonably be expected to lead to a third-party proposal, (ii) participate or engage in any discussions or negotiations regarding, furnish to any person or entity any information or data with respect to, or otherwise cooperate with or knowingly take any other action to facilitate any third-party proposal that constitutes or that would reasonably be expected to lead to any third-party proposal or that requires Ecolab or Nalco, as applicable, to
46
abandon, terminate or fail to consummate the merger or (iii) enter into any contract relating to or providing for a third-party proposal for the acquisition of their company's stock or assets.
Further, even if the Ecolab board of directors or the Nalco board of directors withdraws or qualifies its recommendation with respect to the merger in accordance with the terms and conditions of the merger agreement, Ecolab or Nalco, as the case may be, will still be required to submit each of their merger-related proposals to a vote at their special meeting, unless the merger agreement is terminated prior to the special meeting date in accordance with its terms. In addition, the other party generally has an opportunity to offer to modify the terms of the merger in response to any competing acquisition proposals before the board of directors of the company that has received a third-party proposal may withdraw or qualify its recommendation with respect to the merger.
In certain circumstances, upon termination of the merger agreement, Ecolab and Nalco will be required to pay a termination fee of $275 million and $135 million, respectively, to the other party.
For more information, see "The Merger AgreementChange of Recommendation and No Solicitations of Other Offers" beginning on page 138, "The Merger AgreementTermination of the Merger Agreement" beginning on page 143 and "The Merger AgreementTermination Fees and Expense Reimbursement Obligations" beginning on page 145.
These provisions could discourage potential third-party acquirers that might have an interest in acquiring all or a significant portion of Ecolab or Nalco from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger or might result in a potential third-party acquirer proposing to pay a lower price to the stockholders than it might otherwise have proposed to pay because of the added expense of the termination fees that may become payable in certain circumstances.
If the merger agreement is terminated and either Ecolab or Nalco determines to seek another business combination, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.
The fairness opinions obtained by the boards of directors of Ecolab and Nalco from their respective financial advisors will not reflect changes in circumstances between signing the merger agreement and the completion of the merger.
BofA Merrill Lynch, Ecolab's financial advisor, has delivered to Ecolab's board of directors a written opinion, dated as of July 19, 2011, as to the fairness, from a financial point of view, and as of the date of the opinion, of the merger consideration to be paid in the merger by Ecolab.
Goldman Sachs, Nalco's financial advisor in connection with the merger, has delivered its opinion to the Nalco board of directors that, as of July 19, 2011, and based upon and subject to the factors and assumptions set forth therein, the aggregate merger consideration to be paid to the holders of Nalco common stock pursuant to the merger agreement, subject to certain procedures and limitations contained in the merger agreement, as to which procedures and limitations Goldman Sachs expressed no opinion, was fair, from a financial point of view, to such stockholders.
Neither the Ecolab board of directors nor the Nalco board of directors has obtained an updated fairness opinion as of the date of this joint proxy statement/prospectus from BofA Merrill Lynch, Ecolab's financial advisor, or Goldman Sachs, Nalco's financial advisor.
The opinions do not reflect changes that may occur or may have occurred after the date of the opinions, including changes in the operations and prospects of Ecolab or Nalco, general market and economic conditions and other factors that may be beyond the control of Ecolab and Nalco, and on which the fairness opinions were based, may alter the value of Ecolab or Nalco or the prices of shares
47
of Ecolab common stock or Nalco common stock by the time the merger is completed. The opinions do not speak as of the time the merger will be completed or as of any date other than the dates of such opinions. Because neither Ecolab nor Nalco anticipates asking its financial advisor to update its opinion, neither the opinion of BofA Merrill Lynch nor the opinion of Goldman Sachs addresses the fairness of the stock consideration and the cash consideration or the merger consideration, as applicable, from a financial point of view, at the time the merger is completed. The opinions are included as Annexes B and C to this joint proxy statement/prospectus. For a description of the opinion that the Ecolab board of directors received from BofA Merrill Lynch and a summary of the material financial analyses it provided to the Ecolab board of directors in connection with rendering such opinion, please refer to "The MergerOpinion of Ecolab's Financial Advisor" beginning on page 91. For a description of the opinions that the Nalco board of directors received from Goldman Sachs and a summary of the material financial analyses it provided to the Nalco board of directors in connection with rendering such opinion, please see "The MergerOpinion of Nalco's Financial Advisor" beginning on page 102. For a description of the other factors considered by the board of directors of Ecolab in determining to approve the merger agreement and the merger, please see "The MergerEcolab's Reasons for the Merger; Recommendation of the Ecolab Board of Directors" beginning on page 80. For a description of the other factors considered by the board of directors of Nalco in determining to approve the merger, please see "The MergerNalco's Reasons for the Merger; Recommendation of the Nalco Board of Directors" beginning on page 83.
If the merger is not completed by March 1, 2012, either Ecolab or Nalco may choose not to proceed with the merger.
Either Ecolab or Nalco may terminate the merger agreement if the merger has not been completed by March 1, 2012, unless the failure of the merger to have been completed by such date was primarily caused by the failure of the party seeking to terminate the merger agreement to have performed in all material respects its obligations under the merger agreement. For more information, please see the section titled "The Merger AgreementTermination of the Merger Agreement" beginning on page 143.
Ecolab's common stock price may be negatively impacted by risks and conditions that apply to Ecolab, which are different from the risks and conditions applicable to Nalco.
Upon completion of the merger, some Nalco stockholders will become holders of Ecolab common stock. The businesses and markets of Ecolab and the other companies it has acquired and may acquire in the future are different from those of Nalco. There is a risk that various factors, conditions and developments that would not affect the price of Nalco's common stock could negatively affect the price of Ecolab's common stock. Please see Ecolab's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as updated by subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, all of which were filed with the SEC and incorporated by reference in this joint proxy statement/prospectus, and the section titled "Special Note Regarding Forward-Looking Statements" beginning on page 40 for a summary of some of the key factors that might affect Ecolab and the prices at which Ecolab common stock may trade from time to time.
Ecolab may encounter difficulty or high costs associated with securing financing.
Ecolab expects to fund the cash component of the merger consideration and refinance Nalco's existing credit facility (collectively, approximately $2.8 billion) upon completion of the merger through commercial paper borrowings backed by its new syndicated credit facilities totaling $3.5 billion, which were announced on September 8, 2011, or by borrowings under such facilities, and through the planned issuance prior to the completion of the merger of $500 million of private placement notes. Ecolab also expects to refinance a substantial portion of Nalco's other outstanding debt (currently estimated at
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approximately $1.7 billion) following completion of the merger. Ecolab currently expects to borrow the amounts required to refinance Nalco's other outstanding debt through commercial paper borrowings backed by its syndicated credit facilities, borrowings under such credit facilities, the issuance of publicly or privately held debt securities or a combination of the foregoing. Ecolab's ability to obtain additional debt financing will be subject to various factors, including market conditions, operating performance and Ecolab's ability to incur additional debt. Depending on these factors, the terms upon which debt financing or debt offerings are available to Ecolab may be less favorable to Ecolab than the terms assumed for purposes of preparing the unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus. Ecolab anticipates that its long-term credit ratings will be reduced from A/A2 to BBB+/Baa1 following the merger, which may limit Ecolab's ability to borrow at interest rates consistent with the interest rates that have been available to Ecolab prior to the merger. Ecolab's new credit facilities require compliance by Ecolab with an interest coverage financial covenant which may restrict Ecolab's ability to borrow under its credit facilities or may otherwise significantly restrict its operations. The receipt of financing by Ecolab is not a condition to completion of the merger and, accordingly, Ecolab will be required to complete the merger (assuming that all of the conditions to its obligations under the merger agreement are satisfied) whether or not debt financing is available at all or on acceptable terms.
Risk Factors Relating to the Combined Company Following the Merger
The combined company may be unable to integrate successfully the business of Ecolab and Nalco and realize the anticipated benefits of the merger.
The merger involves the combination of two companies that currently operate as independent public companies. The combined company will be required to devote significant management attention and resources to integrating the business practices and operations of Ecolab and Nalco. Potential difficulties the combined company may encounter as part of the integration process include the following:
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In addition, Ecolab and Nalco have operated and, until the completion of the merger, will continue to operate independently. It is possible that the integration process could result in:
any of which could adversely affect each company's ability to maintain relationships with customers, suppliers, employees and other constituencies or their ability to achieve the anticipated benefits of the merger or could reduce each company's earnings or otherwise adversely affect the business and financial results of the combined company.
The combined company will have substantial indebtedness following the merger and the credit ratings of the combined company or its subsidiaries may be different from what the companies currently expect.
Ecolab expects to fund the cash component of the merger consideration and refinance Nalco's existing credit facility (collectively, approximately $2.8 billion) upon completion of the merger through commercial paper borrowings backed by its new syndicated credit facilities totaling $3.5 billion, which were announced on September 8, 2011, or by borrowings under such facilities, and through the planned issuance prior to the completion of the merger of $500 million of private placement notes. Ecolab also expects to refinance a substantial portion of Nalco's other outstanding debt (currently estimated at approximately $1.7 billion) following completion of the merger. Following the completion of these financing transactions, it is expected that the combined company will have approximately $5.9 billion of short and long-term debt and that its debt service obligations will be approximately $180 million per year. Ecolab currently expects to borrow the amounts required to refinance Nalco's other outstanding debt through commercial paper borrowings backed by its syndicated credit facilities, borrowings under such credit facilities, the issuance of publicly or privately held debt securities or a combination of the foregoing.
On September 6, 2011, Ecolab announced a $1.0 billion share repurchase program, contingent upon the closing of the merger, which is expected to be completed by the end of 2012. The funds required to complete the share repurchase program are expected to come, in whole or in part, from debt financing to be arranged after the completion of the merger.
Ecolab has evaluated the expected credit rating of the combined company after giving effect to the financing transactions relating to the merger and planned share repurchase program and anticipates that the long-term credit rating of the combined company will be reduced from A/A2 to BBB+/Baa1 based on announcements from Standard & Poor's on September 7, 2011 and Moody's Investors Service on September 13, 2011.
The combined company's substantial indebtedness may adversely affect the business, financial condition and operating results of the combined company, including:
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If the combined company incurs additional indebtedness following the merger, the risks related to the substantial indebtedness of the combined company may intensify.
The merger may involve unexpected costs, unexpected liabilities or unexpected delays.
Ecolab and Nalco currently expect to incur substantial costs and expenses relating directly to the merger, including debt refinancing costs, fees and expenses payable to financial advisors, professional fees and expenses, insurance premium costs, fees and costs relating to regulatory filings and notices, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. In addition, it is expected that the combined company will incur substantial costs following completion of the merger in order to integrate the business operations and work forces of Ecolab and Nalco. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. Ecolab and Nalco currently expect to incur non-recurring expenses totaling approximately $105 million in order to complete the merger and to provide initial third party advisory services relating to the integration of the operations of the two companies. The costs and expenses incurred in connection with the merger and the post-merger integration process are difficult to predict and actual costs and expenses may significantly exceed those currently estimated, and likely will result in the combined company taking significant charges against earnings following the completion of the merger. In addition, the merger and post-merger integration process may give rise to unexpected liabilities and costs, including costs associated with the defense and resolution of possible litigation or other claims. Unexpected delays in completing the merger or in connection with the post-merger integration process may significantly increase the related costs and expenses incurred by Ecolab, Nalco and the combined company.
The businesses of the companies may suffer as a result of uncertainty surrounding the merger and disruptions from the transaction may harm relationships with customers, suppliers and employees.
The announcement of the merger may result in significant uncertainties and disruptions. These uncertainties and disruptions may harm relationships of Ecolab and Nalco with their respective customers, suppliers and employees. This uncertainty and harm could also have an adverse effect on the business and operations of the combined company following completion of the merger. Customers and suppliers may be permitted to terminate or modify the terms of existing contracts with Ecolab or Nalco as a result of the merger. In addition, customers and suppliers may cease doing business with Ecolab, Nalco or the combined company in anticipation of or following the merger or may change the
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terms and conditions upon which they are willing to continue to do business. Problems or delays in integrating the business operations and work forces of Ecolab and Nalco following the merger could result in the loss of customers of the combined company or in a reduced ability to attract new customers. Uncertainty regarding the merger may result in the distraction of the attention of senior management and other key employees of Ecolab and Nalco which could have an adverse effect on the business and operations of the two companies and of the combined company following the merger and may complicate Ecolab's existing European restructuring plan. Uncertainty concerning the merger may result in the loss of senior management or other key employees of Ecolab, Nalco and the combined company. In addition, current or prospective competitors of Ecolab, Nalco or the combined company may seek to take advantage of potential uncertainty or disruption resulting from the merger to interfere with relationships with customers, suppliers and employees.
The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the merger.
Following the merger, the size of the business of the combined company will increase significantly beyond the current size of either Ecolab's or Nalco's business. The combined company's future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits currently anticipated from the merger.
Evaluation of, and estimation of potential losses arising from, lawsuits, claims, contingencies and legal proceedings could prove to be inaccurate.
Each of Ecolab and Nalco is involved in various lawsuits, claims and legal proceedings relating to product liability, patents, trademarks, employee matters, contracts, transactions, chemicals, services and other matter that arise from time to time in the ordinary course of business. We cannot predict the outcome of any litigation or the potential for future litigation. Were an unfavorable ruling to occur, it may adversely affect each company's results of operations for the period in which the ruling occurs.
Additionally, each company evaluates these lawsuits, claims, legal proceedings and other contingencies to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of any potential losses. Based on these assessments and estimates, if any, each company maintains accruals where the outcome of the matter is probable and can be reasonably estimated. Litigation is inherently unpredictable, and, accordingly, these assessments and estimates are based on the information available to each company's respective management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from those envisioned by management's assessments and estimates, which could expose each company to losses that exceed the reserves set for such claims.
Ecolab's actual financial position and results of operations may differ materially from the unaudited pro forma condensed combined financial information included herein.
The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus is presented for illustrative purposes only and are not necessarily indicative of what Ecolab's actual financial position or results of operations would have been had the merger been completed on the dates indicated. This information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to Nalco's net assets. The purchase price allocation reflected in this joint proxy statement/prospectus is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Nalco as of the date of the completion of the merger. In addition, subsequent to the closing date of the merger, there may be further refinements of the purchase price allocation as additional information
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becomes available. Accordingly, the final purchase accounting adjustments might differ materially from the unaudited pro forma adjustments reflected herein. For further information see the sections titled "SummarySummary Unaudited Pro Forma Condensed Combined Financial Information of Ecolab and Nalco," beginning on page 37, and "Unaudited Pro Forma Condensed Combined Financial Information," beginning on page 153.
Future events may impact the combined company's deferred tax position, including the utilization of foreign tax credits and undistributed earnings of international affiliates that are considered to be reinvested indefinitely.
Ecolab evaluates the recoverability of deferred tax assets and the need for deferred tax liabilities based on all available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. Ecolab is required to establish a valuation allowance for deferred tax assets or record a deferred tax liability if it determines, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In making this determination, Ecolab evaluates all positive and negative evidence as of the end of each reporting period. Future adjustments (either increases or decreases), to the deferred tax asset valuation allowance are determined based upon changes in the expected realization of the net deferred tax assets. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carry-back or carry-forward periods under the tax law. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that Ecolab will be required to record adjustments to the valuation allowance in future reporting periods. Changes to the valuation allowance or the amount of deferred tax liabilities could adversely affect Ecolab's results of operations, financial condition and capital position.
As of December 31, 2010, Ecolab and Nalco have approximately $22 million and $92 million of foreign tax credit carryforwards, respectively. Ecolab and Nalco do not separately disclose the amount of foreign tax credit carryforwards in their quarterly SEC filings. Pro forma deferred tax adjustments related to the combined company's foreign tax credit carryforwards were not recorded. In future periods, Ecolab may determine that adjustments to the combined company's foreign tax credit carryforwards should be made and that related adjustments to deferred tax assets should be recorded. Information to reasonably calculate such an adjustment is not currently available.
As of December 31, 2010, Ecolab and Nalco reported approximately $1 billion and $467 million, respectively, of undistributed earnings of international affiliates that are considered to be reinvested indefinitely or available for distribution with foreign tax credits available as an offset. Ecolab and Nalco do not report in quarterly SEC filings their undistributed earnings of international affiliates that are considered to be reinvested indefinitely. Subsequent to the date of this joint proxy statement/prospectus, Ecolab will analyze the combined company's earnings positions. At such time Ecolab may determine that the foreign earnings of certain international affiliates are not being reinvested indefinitely and that a related adjustment to deferred tax liabilities should be recorded which, when combined with repatriation of the foreign earnings, could affect the amount of foreign tax credit carryforwards referenced above. Pro forma deferred tax adjustments related to the combined company's undistributed earnings of international affiliates have not been recorded because information to reasonably calculate such an adjustment is not currently available.
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Ecolab will likely have to make additional contributions following completion of the merger to fund its pension and other post-retirement benefit plans, including Nalco plans. Contributions will negatively impact its cash flow.
Ecolab and Nalco currently contribute to defined benefit pension plans and other post-retirement benefit plans that cover various categories of employees and retirees. The obligation to make contributions to fund benefit obligations under these pension and other post-retirement benefit plans is based on actuarial valuations, which are based on certain assumptions, including the long-term return on plan assets and discount rate. As of December 31, 2010, Nalco estimated that its defined benefit pension plans were underfunded by approximately $405.1 million and that its other post-retirement benefit plans were underfunded by approximately $123.0 million. Ecolab will likely have to make additional contributions following completion of the merger to fund its pension and other post-retirement benefit plans, including these Nalco plans. Contributions will negatively impact its cash flow.
Ecolab may incur significant expenses related to the amortization of intangible assets and may be required to report losses resulting from the impairment of goodwill or other assets recorded, each in connection with the merger or other completed or future acquisitions.
The merger will be treated as an acquisition of Nalco by Ecolab for accounting purposes. Both Ecolab and Nalco have in the past expanded their operations through other acquisitions and joint ventures involving businesses owned by third parties. Ecolab expects to continue to complete selected acquisitions and joint venture transactions in the future. In connection with acquisition and joint venture transactions, applicable accounting rules generally require the tangible and certain intangible assets of the acquired business to be recorded on the balance sheet of the acquiring company at their fair market value. Intangible assets other than goodwill are required to be amortized over their estimated useful lives and this expense may be significant. Any excess in the purchase price paid by the acquiring company over the fair market value of tangible and intangible assets of the acquired business is recorded as goodwill. If it is later determined that the anticipated future cash flows from the acquired business will be less than the fair market value of the assets and goodwill of the acquired business recorded at the time of the acquisition, the assets or goodwill may be deemed to be impaired. In this case, the acquiring company may be required under applicable accounting rules to write down the value of the assets or goodwill on its balance sheet to reflect the extent of the impairment. This write down of assets or goodwill is generally recognized as a non-cash expense in the statement of operations of the acquiring company for the accounting period during which the write down occurs. If Ecolab determines that any of the assets or goodwill recorded in connection with the merger or any other prior or future acquisitions or joint venture transactions have become impaired, Ecolab will be required to record a loss resulting from the impairment. Impairment losses could be significant and could adversely affect the results of operations and financial condition of Ecolab.
Other Risk Factors of Ecolab and Nalco
Ecolab's and Nalco's businesses are and will be subject to the risks described above. In addition, Ecolab and Nalco are, and will continue to be, subject to the risks described in Ecolab's and Nalco's Annual Reports on Form 10-K for the fiscal year ended December 31, 2010, as updated by subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference in this joint proxy statement/prospectus. See "Where You Can Find More Information" beginning on page 192 for the location of information incorporated by reference in this joint proxy statement/prospectus.
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370
Wabasha Street North
St. Paul, Minnesota 55102
(800) 232-6522
With sales of $6 billion and more than 26,000 associates, Ecolab Inc., a Delaware corporation, is the global leader in cleaning, sanitizing, food safety and infection prevention products and services and delivers comprehensive programs and services in more than 160 countries. Ecolab also provides pest elimination, maintenance and repair services. Ecolab provides products and services primarily to hotels and restaurants, healthcare and educational facilities, quick-service (fast-food and other convenience store) units, grocery stores, commercial and institutional laundries, light industry, dairy plants and farms, food and beverage processors and the vehicle wash industry. A strong commitment to customer support is a distinguishing characteristic of Ecolab's business.
Ecolab's common stock is listed and traded on the New York Stock Exchange under the symbol "ECL."
Additional information about Ecolab and its subsidiaries is included in documents incorporated by reference in this joint proxy statement/prospectus. For further information, please see the section titled "Where You Can Find More Information" beginning on page 192.
1601
West Diehl Road
Naperville, Illinois 60563-1198
(630) 305-1000
Nalco Holding Company, a Delaware corporation, is the world's leading water treatment and process improvement company, delivering significant environmental, social and economic performance benefits to a variety of industrial and institutional customers. Nalco has over 12,400 employees working in more than 150 countries. Nalco programs and services are used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits and extend asset life, among other functions, and in production processes to enhance process efficiency, extend asset life and improve customers' end products. Nalco also helps customers reduce energy, water and other natural resource consumption, minimizing environmental releases.
Nalco's common stock is listed and traded on the New York Stock Exchange under the symbol "NLC."
Additional information about Nalco and its subsidiaries is included in documents incorporated by reference in this joint proxy statement/prospectus. For further information, please see the section titled "Where You Can Find More Information" beginning on page 192.
Sustainability Partners Corporation
c/o
Ecolab Inc.
370 Wabasha Street North
St. Paul, Minnesota 55102
(800) 232-6522
Sustainability Partners Corporation, which we refer to as Merger Subsidiary, a wholly-owned subsidiary of Ecolab, is a Delaware corporation that was formed on July 14, 2011 for the sole purpose of effecting the merger. In the merger, Nalco will be merged with and into Merger Subsidiary, with Merger Subsidiary surviving the merger as a wholly-owned subsidiary of Ecolab.
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This joint proxy statement/prospectus is being provided to the stockholders of Ecolab as part of a solicitation of proxies by Ecolab's board of directors for use at Ecolab's special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof. This joint proxy statement/prospectus provides stockholders of Ecolab with the information they need to know to be able to vote or instruct their vote to be cast at Ecolab's special meeting.
The special meeting of Ecolab stockholders will be held at the Ecolab Corporate Center, 370 Wabasha Street North, St. Paul, Minnesota 55102, on , 2011, at , local time.
Purpose of the Ecolab Special Meeting
At the Ecolab special meeting, Ecolab stockholders will be asked to:
Recommendation of the Ecolab Board of Directors
After careful consideration, the Ecolab board of directors has unanimously approved the merger agreement, declared it advisable, approved the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger and determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, are in the best interests of Ecolab and its stockholders. The Ecolab board of directors has further unanimously approved an amendment to Ecolab's restated certificate of incorporation in accordance with the additional share authorization proposal and has determined that such amendment is advisable and in the best interests of Ecolab and its stockholders.
The Ecolab board of directors accordingly unanimously recommends that Ecolab stockholders vote "FOR" each of the share issuance proposal, the additional share authorization proposal and the Ecolab adjournment proposal.
Ecolab Record Date; Stockholders Entitled to Vote
The Ecolab board of directors has fixed the close of business on , 2011 as the record date for determination of Ecolab stockholders entitled to receive notice of, and to vote at, the Ecolab special meeting or any adjournments or postponements thereof. Only holders of record of Ecolab common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the Ecolab special meeting or any adjournments or postponements thereof.
At the close of business on the Ecolab record date, there were shares of Ecolab common stock issued and outstanding and entitled to vote at the Ecolab special meeting. Ecolab
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stockholders will have one vote for each share of Ecolab common stock they owned on the Ecolab record date, in person or through the Internet or by telephone or by a properly executed and delivered proxy with respect to the Ecolab special meeting. A list of stockholders of Ecolab will be available for review for any purpose germane to the special meeting at Ecolab's executive offices and principal place of business at 370 Wabasha Street North, St. Paul, Minnesota 55102, during regular business hours for a period of ten days before the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.
Voting by Ecolab's Directors and Executive Officers
At the close of business on the Ecolab record date, Ecolab directors, executive officers and their affiliates held and were entitled to vote shares of Ecolab common stock, or approximately % of the shares of Ecolab common stock outstanding on that date. We currently expect that Ecolab's directors and executive officers will vote their shares in favor of the proposal to approve each of the proposals to be considered at the Ecolab special meeting, although none of them has entered into any agreement obligating them to do so.
Stockholders who hold shares representing a majority of the issued and outstanding shares of Ecolab common stock must be present in person or represented by proxy to constitute a quorum for the transaction of business at the Ecolab special meeting. If a quorum is not present, or if fewer shares are voted in favor of the share issuance proposal than is required, the special meeting may be adjourned to another time and place by the vote of a majority of the shares present in person or represented by proxy and entitled to vote at the special meeting, whether or not a quorum is present, to allow additional time for obtaining additional proxies or votes. No notice of an adjourned meeting need be given unless the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At any subsequent reconvening of the special meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting and all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent meeting.
Abstentions and broker non-votes, which are described below, will be included in the calculation of the number of shares of Ecolab common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. However, shares of Ecolab common stock held in treasury will not be included in the calculation of the number of shares of Ecolab common stock represented at the special meeting for purposes of determining whether a quorum has been achieved.
The share issuance proposal and Ecolab adjournment proposal each require approval by a majority of the total votes cast at the Ecolab special meeting by the holders of shares of Ecolab common stock present in person or represented by proxy and entitled to vote on that proposal. Under applicable NYSE rules, the total votes cast (whether for, against or abstain) on the share issuance proposal must also represent a majority of the shares of Ecolab common stock issued and outstanding as of the Ecolab record date. Votes to abstain are treated the same as votes "AGAINST" these proposals. Failures to vote and broker non-votes will have no effect on either proposal, assuming a quorum is present.
Approval of the additional share authorization proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Ecolab common stock entitled to vote on the
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proposal. Failures to vote, votes to abstain and broker non-votes will have the effect of a vote "AGAINST" the proposal.
Failure to Vote, Broker Non-Votes and Abstentions
In accordance with the rules of the NYSE, banks, brokers and other nominees who hold shares of Nalco common stock in "street name" for their customers but do not have discretionary authority to vote the shares may not exercise their voting discretion with respect to the merger proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of such shares, they may not vote such shares with respect to the merger proposal.
If you are an Ecolab stockholder and fail to vote or fail to instruct your broker, bank or other nominee to vote, it will have no effect on the share issuance proposal or the Ecolab adjournment proposal, assuming a quorum is present.
If you are an Ecolab stockholder and you mark your proxy or voting instructions to abstain, it will have the effect of a vote "AGAINST" the share issuance proposal and Ecolab adjournment proposal. If you are an Ecolab stockholder and fail to vote, fail to instruct your broker, bank or other nominee to vote, or mark your proxy or voting instructions to abstain, it will have the effect of a vote "AGAINST" the additional share authorization proposal.
If you are an Ecolab stockholder through an Ecolab employee plan and fail to instruct the trustee how to vote, the trustee will vote your shares as described below under "Ecolab Employee Plans."
Voting by Proxy at the Special Meeting
If you are a registered or "record" holder, which means your shares are registered in your name with Computershare Trust Company, N.A., Ecolab's transfer agent and registrar, you may vote by proxy or in person at the special meeting. If your shares are held in "street name," which means your shares are held of record in an account with a broker, bank or other nominee, you must follow the instructions from your broker, bank or other nominee in order to vote.
Whether or not you plan to attend Ecolab's special meeting, please vote your shares promptly by proxy, to ensure that your shares are represented.
If you plan to attend Ecolab's special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in "street name," and you wish to vote at the special meeting, you must bring to the special meeting a proxy executed in your favor from the record holder (your broker, bank or other nominee) of the shares authorizing you to vote at the special meeting.
In addition, if you are a registered stockholder, please be prepared to provide proper identification, such as a driver's license. If you hold your shares in "street name," you will need to provide proof of ownership, such as a recent account statement or letter from your bank, broker or other nominee, along with proper identification. Stockholders will not be allowed to use cameras, recording devices and other similar electronic devices at the meeting.
Voting of Proxies by Holders of Record
If you are a holder of record, a proxy card is enclosed for your use. Ecolab requests that you submit a proxy promptly by following the easy instructions on the enclosed proxy card to vote via Internet, by telephone or by mail. When the accompanying proxy is properly executed and submitted,
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the shares of Ecolab common stock represented by it will be voted at the Ecolab special meeting or any adjournment or postponement thereof in accordance with the instructions contained in the proxy.
If a proxy is returned without an indication as to how the shares of Ecolab common stock represented are to be voted with regard to a particular proposal, the Ecolab common stock represented by the proxy will be voted in accordance with the recommendation of the Ecolab board of directors and, therefore, "FOR" each of the proposals to be considered at the Ecolab special meeting. As of the date of this joint proxy statement/prospectus, Ecolab management has no knowledge of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this joint proxy statement/prospectus or the related proxy card other than the matters set forth in Ecolab's Notice of Special Meeting of Stockholders. If any other matter is properly presented at the special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.
Your vote is important. Accordingly, please submit your proxy promptly using the enclosed proxy card to vote by telephone, by Internet or by mail, whether or not you plan to attend the Ecolab special meeting in person.
If you hold your shares in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank or broker. Please note that you may not vote shares held in street name by returning a proxy card directly to Ecolab or by voting in person at your stockholders meeting unless you have a "legal proxy," which you must obtain from your bank or broker. Further, brokers who hold shares of Ecolab common stock on behalf of their customers may not give a proxy to Ecolab to vote those shares without specific instructions from their customers.
If you hold shares of Ecolab common stock through the Ecolab Savings Plan and ESOP, with respect to which Fidelity Management Trust Company acts as trustee, the Ecolab Stock Purchase Plan administered by Computershare Trust Company, Inc. or the Ecolab Canada Share Purchase Plan administered by SG Vestia Systems Inc., which we refer to collectively as the Ecolab employee plans, you can instruct the trustee or administrator of your Ecolab employee plan, in a confidential manner, how to vote the equivalent number of Ecolab shares allocated to you in your Ecolab employee plan. If you are a participant in an Ecolab employee plan, the enclosed proxy card will serve as a voting instruction to the respective trustee or administrator of your Ecolab employee plan, and if your instructions are timely received, the trustee or administrator will follow your voting instructions. If you hold Ecolab shares through any other Ecolab employee plans, you will receive voting instructions from that plan's administrator.
Generally, you will receive only one proxy card covering all the shares you hold in your own name, through the Ecolab Dividend Reinvestment Plan sponsored by Computershare Trust Company, N.A or through the Ecolab employee plans.
You may use one of the following three methods:
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To allow sufficient time for voting of your shares by the trustee or administrator of your Ecolab employee plan, your voting instructions should be received by , 2011 to allow for tabulation.
In addition, since only the trustee or administrator of an Ecolab employee plan can vote your shares held through that plan, you will not be able to vote your Ecolab employee plan shares personally at the Ecolab special meeting. Please note that, except as described below, the applicable trust agreement governing the Ecolab Savings Plan and ESOP provides that if the trustee does not receive your voting instructions, the trustee will vote your shares in the same proportion as it votes the shares for which instructions are timely received from other participants.
Voting of the shares in the Ecolab Savings Plan and ESOP is subject to federal pension laws, which require the trustee or administrator to act as a fiduciary for participants in the Ecolab Savings Plan and ESOP in deciding how to vote the shares. Therefore, irrespective of these voting provisions, it is possible that the trustee or administrator may decide to vote shares other than as set forth above if it determines it is required to do so under applicable law.
You must vote shares that you hold through a broker, bank or other nominee separately in accordance with each of the voting instruction cards you receive with respect to such street name shares of Ecolab common stock.
All shares represented by properly executed proxies received in time for the Ecolab special meeting will be voted at the meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted "FOR" each of the proposals to be considered at the Ecolab special meeting.
If you are the record holder of stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the Ecolab special meeting. You can do this by:
A registered stockholder may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder's previous proxy.
Written notices of revocation and other communications with respect to the revocation of proxies from a registered stockholder may, in addition to the prior described methods, be addressed as follows:
Ecolab Inc.
370 Wabasha Street North
St. Paul, Minnesota 55102
Attention: Corporate Secretary
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Please note that if your shares are held in "street name" through a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee in accordance with its established procedures. If your shares are held in the name of a broker, bank or other nominee and you decide to change your vote by attending the special meeting and voting in person, your vote in person at the special meeting will not be effective unless you have obtained and present an executed proxy issued in your name from the record holder (your broker, bank or other nominee).
If you hold shares of Ecolab common stock in an Ecolab employee plan, there are two ways in which you may revoke your instructions and change your vote with respect to voting the shares allocated to you in your Ecolab employee plan:
Ecolab has appointed one or more representatives of Computershare Trust Company, N.A. to serve as the inspector of election for the Ecolab special meeting. The inspector of election will, among other matters, determine the number of shares represented at the Ecolab special meeting to confirm the existence of a quorum, determine the validity of all proxies and ballots and tabulate and certify the results of voting on all proposals submitted to the stockholders.
Ecolab is soliciting proxies for the Ecolab special meeting and, in accordance with the merger agreement, the cost of proxy solicitation will be borne by Ecolab. In addition to solicitation by use of mails, proxies may be solicited by Ecolab directors, officers and employees, each of whom is a participant in this solicitation, in person or by telephone or other means of communication. These individuals will not be additionally compensated, but may be reimbursed for out-of-pocket expenses associated with solicitation. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation material to beneficial owners of common stock and voting preferred stock held of record, and we may reimburse these individuals for their reasonable expenses. To help assure the presence in person or by proxy of the largest number of stockholders possible, we have engaged Innisfree M&A Incorporated, which we refer to as Innisfree, a proxy solicitation firm, to solicit proxies on Ecolab's behalf. We have agreed to pay Innisfree a proxy solicitation fee not to exceed $75,000. We will also reimburse Innisfree for its reasonable out-of pocket costs and expenses.
Any adjournment of the Ecolab special meeting may be made from time to time by approval of the holders of a majority of the shares of common stock present in person or represented by proxy at the special meeting, whether or not a quorum exists, without further notice other than by an announcement made at the special meeting. If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are not sufficient votes at the time of the special
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meeting to approve the share issuance proposal, then Ecolab stockholders may be asked to vote on a proposal to adjourn the special meeting so as to permit the further solicitation of proxies.
Electronic Access to Proxy Materials
This joint proxy statement/prospectus is available to Ecolab stockholders at
www.edocumentview.com/ecl.
If you need assistance in completing your proxy card or have questions regarding Ecolab's special meeting, please contact Innisfree M&A Incorporated at 501 Madison Avenue, 20th Floor, New York, New York 10022; stockholders call toll-free: (877) 456-3510.
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This joint proxy statement/prospectus is being provided to the stockholders of Nalco as part of a solicitation of proxies by Nalco's board of directors for use at Nalco's special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof. This joint proxy statement/prospectus provides stockholders of Nalco with the information they need to know to be able to vote or instruct their vote to be cast at Nalco's special meeting.
The special meeting of Nalco stockholders will be held at the Nalco Company Corporate Offices at 1601 West Diehl Road, Naperville, Illinois, 60563-1198, on , 2011, at , local time.
Purpose of the Nalco Special Meeting
At the Nalco special meeting, Nalco stockholders will be asked to consider and vote on:
Recommendation of the Nalco Board of Directors
After careful consideration, the Nalco board of directors has unanimously approved the merger agreement, declared it advisable and determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are in the best interests of Nalco and its stockholders.
The Nalco board of directors accordingly unanimously recommends that Nalco stockholders vote "FOR" each of the merger proposal, the compensation proposal and the Nalco adjournment proposal.
Nalco Record Date; Stockholders Entitled to Vote
The Nalco board of directors has fixed the close of business on , 2011 as the record date, which we refer to as the Nalco record date, for determination of Nalco stockholders entitled to receive notice of, and to vote at, the Nalco special meeting or any adjournments or postponements thereof. Only holders of record of issued and outstanding Nalco common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the Nalco special meeting or any adjournments or postponements thereof.
At the close of business on the Nalco record date, there were shares of Nalco common stock issued and outstanding and entitled to vote at the Nalco special meeting. Nalco stockholders are entitled to one vote for each share of Nalco common stock they owned as of the close of business on the Nalco record date. A list of stockholders of Nalco will be available for review for any purpose germane to the special meeting at Nalco's executive offices and principal place of business at 1601 West Diehl Road in Naperville, Illinois 60563-1198, during regular business hours for a period of ten days before the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.
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Voting by Nalco's Directors and Executive Officers
At the close of business on the Nalco record date, Nalco directors, executive officers and their affiliates held and were entitled to vote approximately shares of Nalco common stock, or approximately % of the shares of Nalco common stock outstanding on that date. We currently expect that Nalco's directors and executive officers will vote their shares in favor of each of the proposals to be considered at the Nalco special meeting, although none of them has entered into any agreement obligating them to do so.
Stockholders who hold shares representing a majority of the issued and outstanding shares of Nalco common stock entitled to vote at the special meeting must be present in person or represented by proxy to constitute a quorum for the transaction of business at the Nalco special meeting. If a quorum is not present, any officer of Nalco entitled to preside at or to act as secretary of the Nalco special meeting will have the power to adjourn the meeting from time to time until a quorum is present.
Abstentions (shares of Nalco common stock for which proxies have been received but for which the holders have abstained from voting) and broker non-votes (shares of Nalco common stock for which proxies have been returned by a broker indicating that the broker has not received voting instructions from the beneficial owner of the shares and does not have discretionary authority to vote the shares) will be included in the calculation of the number of shares of Nalco common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. However, shares of Nalco common stock held in treasury will not be included in the calculation of the number of shares of Nalco common stock represented at the special meeting for purposes of determining whether a quorum has been achieved.
Approval of the merger proposal requires the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock entitled to vote on the proposal. The compensation proposal and Nalco adjournment proposal each require the affirmative vote of holders of a majority of the issued and outstanding shares of Nalco common stock present in person or represented by proxy at the Nalco special meeting and entitled to vote on that proposal.
Failure to Vote, Broker Non-Votes and Abstentions
In accordance with the rules of the NYSE, banks, brokers and other nominees who hold shares of Nalco common stock in "street name" for their customers but do not have discretionary authority to vote the shares may not exercise their voting discretion with respect to the merger proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of such shares, they may not vote such shares with respect to the merger proposal.
If you fail to vote, fail to instruct your broker, bank or other nominee to vote, or mark your proxy or voting instructions to abstain, it will have the effect of a vote "AGAINST" the merger proposal.
If you fail to instruct your broker, bank or other nominee to vote or fail to vote, it will have no effect on the compensation proposal or the Nalco adjournment proposal, assuming a quorum is present. If you mark your proxy or voting instructions to abstain, it will have the effect of a vote "AGAINST" the compensation proposal and Nalco adjournment proposal.
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Whether or not you plan to attend Nalco's special meeting, please vote your shares. If you are a registered or "record" holder, which means your shares are registered in your name with Computershare Trust Company, N.A., Nalco's transfer agent and registrar, you may vote in person at the special meeting or by proxy. If your shares are held in "street name," which means your shares are held of record in an account with a broker, bank or other nominee, you must follow the instructions from your broker, bank or other nominee in order to vote.
If you plan to attend Nalco's special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in "street name," and you wish to vote at the special meeting, you must bring to the special meeting a "legal proxy" executed in your favor from the record holder (your broker, bank or other nominee) of the shares authorizing you to vote at the special meeting.
In addition, if you are a registered stockholder, please be prepared to provide proper identification, such as a driver's license. If you hold your shares in "street name," you will need to provide proof of ownership, such as a recent account statement or letter from your bank, broker or other nominee, along with proper identification. Stockholders will not be allowed to use cameras, recording devices and other similar electronic devices at the meeting.
Voting of Proxies by Holders of Record
If you are a registered stockholder, a proxy card is enclosed for your use. Nalco requests that you submit a proxy promptly by following the easy instructions on the enclosed proxy card to vote via Internet, by telephone or by mail. When the accompanying proxy card is properly executed and submitted, the shares of Nalco common stock represented by it will be voted at the Nalco special meeting or any adjournment or postponement thereof in accordance with the instructions contained in the proxy card.
If a signed proxy card is returned without an indication as to how the shares of Nalco common stock represented are to be voted with regard to a particular proposal, the Nalco common stock represented by the proxy will be voted in accordance with the recommendation of the Nalco board of directors and, therefore, "FOR" each of the proposals to be considered at the Nalco special meeting. As of the date of this joint proxy statement/prospectus, Nalco management has no knowledge of any business that will be presented for consideration at the special meeting and which would be required to be set forth in this joint proxy statement/prospectus or the related proxy card other than the matters set forth in Nalco's Notice of Special Meeting of Stockholders. If any other matter is properly presented at the special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.
Your vote is important. Accordingly, please submit your proxy promptly using the enclosed proxy card to vote by telephone, by Internet or by mail, whether or not you plan to attend the Nalco special meeting in person.
If you hold your shares in "street name," you may vote by mail by completing, signing and returning the voting instruction form provided by your brokerage firm, bank or other nominee. In addition to voting by mail, a number of brokerage firms and banks participate in a program that also permits "street name" stockholders to direct their vote by telephone or over the Internet. If your shares are held in an account with a brokerage firm or bank that participates in such a program, you
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may vote those shares telephonically by calling the telephone number shown on the voting instruction form received from your brokerage firm or bank, or by accessing the Internet as described on the voting instruction form. Votes directed by telephone or over the Internet through such a program must be received by , on . Please follow the voting instructions provided by your bank or broker. Please note that you may not vote shares held in "street name" by returning a proxy card directly to Nalco or by voting in person at the Nalco special meeting unless you have a "legal proxy" executed in your favor from your bank, broker or other nominee. Further, brokers who hold shares of Nalco common stock on behalf of their customers may not give a proxy to Nalco to vote those shares without specific instructions from their customers.
All shares represented by properly executed proxies received in time for the Nalco special meeting will be voted at the meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted "FOR" each of the proposals to be considered at the Nalco special meeting.
If you are the record holder of stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the Nalco special meeting. You can do this by:
A registered stockholder may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder's previous proxy.
Written notices of revocation and other communications with respect to the revocation of proxies should be addressed as follows:
Nalco
Holding Company
1601 West Diehl Road
Naperville, Illinois 60563-1198
Attention: Corporate Secretary
Please note that if your shares are held in "street name" through a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee in accordance with its established procedures. If your shares are held in the name of a broker, bank or other nominee and you decide to change your vote by attending the special meeting and voting in person, your vote in person at the special meeting will not be effective unless you have obtained and present "legal proxy" executed in your favor from the record holder (your broker, bank or other nominee).
Nalco has appointed one or more representatives of Computershare Trust Company, N.A. to serve as the inspector of election for the Nalco special meeting. The inspector of election will, among other
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matters, determine the number of shares represented at the Nalco special meeting to confirm the existence of a quorum, determine the validity of all proxies and ballots and certify the results of voting on all proposals submitted to the stockholders.
Nalco is soliciting proxies for the Nalco special meeting and, in accordance with the merger agreement, the cost of proxy solicitation will be borne by Nalco. In addition to solicitation by use of mails, proxies may be solicited by Nalco directors, officers and employees, some of whom may be considered a participant in this solicitation, in person or by telephone or other means of communication. These individuals will not be additionally compensated. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation material to beneficial owners of common stock and voting preferred stock held of record, and we may reimburse these individuals for their reasonable out-of-pocket expenses. To help assure the presence in person or by proxy of the largest number of stockholders possible, we have engaged MacKenzie Partners, Inc., which we refer to as MacKenzie Partners, a proxy solicitation firm, to solicit proxies on Nalco's behalf. We have agreed to pay McKenzie Partners a proxy solicitation fee not to exceed $75,000. We will also reimburse MacKenzie Partners for its reasonable out-of pocket costs and expenses incurred in forwarding the proxy materials.
If a quorum is not present, any officer of Nalco entitled to preside at or to act as secretary of the Nalco special meeting will have the power to adjourn the meeting from time to time until a quorum is present. If a quorum is present, an adjournment of the Nalco special meeting may be made from time to time by approval of the holders of a majority of the shares of Nalco common stock present in person or represented by proxy and entitled to vote at the Nalco special meeting. If a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the merger proposal, then Nalco stockholders may be asked to vote on a proposal to adjourn the special meeting so as to permit the further solicitation of proxies. No notice of an adjourned meeting need be given unless the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At any subsequent reconvening of the special meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting and all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent meeting.
Electronic Access to Proxy Materials
This joint proxy statement/prospectus is available on Nalco's Internet site at www.nalco.com/proxy.
If you need assistance in completing your proxy card or have questions regarding Nalco's special meeting, please contact MacKenzie Partners, Inc. at 105 Madison Avenue, New York, New York 10016, email at: proxy@mackenziepartners.com, call collect: (212) 929-5500, or call toll-free: (800) 322-2885.
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At the effective time of the merger, Nalco will merge with and into Merger Subsidiary, a wholly-owned subsidiary of Ecolab that was formed for the sole purpose of effecting the merger. Merger Subsidiary will survive the merger and continue as a wholly-owned subsidiary of Ecolab.
In the merger, each share of Nalco common stock issued and outstanding immediately prior to the effective time of the merger, other than shares owned by Ecolab, Nalco or any of their respective wholly-owned subsidiaries and shares in respect of which appraisal rights have been properly exercised and not withdrawn, will be converted into the right to receive at the election of the stockholder, subject to certain proration and reallocation procedures described below, either 0.7005 shares of Ecolab common stock or $38.80 in cash, without interest. Nalco stockholders will not receive any fractional shares of Ecolab common stock in the merger. Instead, they will receive cash in lieu of any fractional shares of Ecolab common stock.
Under the merger agreement, approximately 70% of the issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive Ecolab common stock and approximately 30% of issued and outstanding shares of Nalco common stock immediately prior to the effective time will be converted into the right to receive cash. In order to achieve this 70%/30% stock-cash mix of consideration, the merger agreement provides for adjustments to and reallocation of the stock and cash elections made by Nalco stockholders, as well as the allocation of consideration to be paid with respect to Nalco shares owned by stockholders who fail to make an election.
The board of directors and senior management of Ecolab from time to time review and evaluate potential strategic alternatives relating to Ecolab and its business, including possible acquisitions, divestitures and business combination transactions. Similarly, the board of directors and senior management of Nalco from time to time review and evaluate potential strategic alternatives relating to Nalco and its business, including possible acquisitions, divestitures and business combination transactions.
From time to time for over ten years, representatives of the senior management of Ecolab and Nalco have held preliminary discussions regarding the possibility of establishing various collaborative business relationships between the two companies, such as the possible formation of joint ventures to pursue certain business opportunities and joint marketing and distribution arrangements. These discussions often focused on the establishment of commercial arrangements, such as joint ventures or joint marketing arrangements, between the companies to permit services and chemicals to be delivered to each company's customers more efficiently, particularly in the food and beverage and institutional markets where the companies serve similar customer bases. Similar to the rationale for the merger, the respective management of Ecolab and Nalco believed the potential benefits of a joint venture between the companies included, among others, the opportunity to provide customers in these markets with a more integrated cleaning and sanitizing and water treatment offering that would promote operational efficiencies for the customer, particularly in the food and beverage market, which is a significant user of water in its cleaning operations. Other opportunities and arrangements included, among other things, the development of joint products, services and technologies to address a number of the issues each company's customers faced regarding the handling of waste and the entrance into cross-licensing agreements with respect to automation technologies in order to enhance the products and services offered by each company. Issues over management control and allocation of profits between the companies in the venture could not be resolved. Accordingly, none of these discussions led to the completion of a collaborative business relationship between the companies, and no business has been
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conducted between the companies other than the de minimis supply of products and equipment on an arms-length basis.
In 2003 and 2004, Ecolab was contacted by representatives of Nalco's then owners with respect to its possible interest in acquiring Nalco. In view of Ecolab's strategic plan and priorities at that time, and the fact that Ecolab was in the midst of a CEO transition, Ecolab determined not to pursue discussions regarding a possible acquisition of Nalco in response to these inquiries.
Recognizing the increasing importance of water quality and re-use to its customers as well as the long-term market dynamics relating to water scarcity and energy costs, beginning in 2007, Ecolab's long-term business strategy has identified developing a leading water, energy and waste, or WEW, business as a priority. Ecolab's WEW business has to-date been developed principally through small acquisitions, organic growth and internal resources.
On January 28, 2011, Douglas M. Baker, Jr., the chairman, president and chief executive officer of Ecolab, initiated discussions with J. Erik Fyrwald, the chairman, president and chief executive officer of Nalco, while separately attending the World Economic Forum held in Davos, Switzerland, regarding the possibility of benchmarking the businesses of Ecolab and Nalco against each other for purposes of improving each of their respective businesses. This discussion did not involve the possibility of a business combination or similar transaction. Based on this initial discussion, Mr. Baker and Mr. Fyrwald agreed to meet again on the topic of benchmarking, including to discuss an exchange of internal benchmarking information between Ecolab and Nalco.
Following the meeting with Mr. Baker, Mr. Fyrwald spoke with Rodney Chase, the lead director of Nalco, by telephone and informed him of his discussion with Mr. Baker and their intention to further discuss a possible exchange of appropriate benchmarking information between the companies.
On February 24, 2011, at a regularly-scheduled meeting of the Ecolab board of directors, Mr. Baker discussed with the board several possible strategic alternatives and combinations as part of Ecolab's overall long-term strategic plan review and annual plan process. These possibilities included consideration of potential transactions with several companies that Ecolab routinely monitors as potential acquisition candidates in various areas of strategic interest. Nalco was one of the companies profiled by management. Mr. Baker also advised the board of his benchmarking discussions with Mr. Fyrwald and indicated his intention to determine if Nalco would be open to a broader discussion of a possible business relationship, including a business combination.
On March 22, 2011, Mr. Baker met with Mr. Fyrwald at Nalco's headquarters in Naperville, Illinois to discuss further the respective party's interest in exchanging internal benchmarking information and other potential cost saving initiatives between the companies. At the end of the meeting, Mr. Baker indicated to Mr. Fyrwald that Ecolab would also be interested in opening discussions with Nalco regarding the possibility of a business combination between the two companies. Following the meeting Mr. Fyrwald spoke with Mr. Chase by telephone and discussed his meeting with Mr. Baker earlier that day, including the fact that Mr. Baker indicated that Ecolab would be interested in opening discussions with Nalco regarding the possibility of a business combination. Mr. Fyrwald also contacted the other members of the Nalco board to provide a description of his meeting with Mr. Baker, including Ecolab's interest in discussing a potential business combination.
On March 25, 2011, Mr. Baker and Mr. Fyrwald spoke by phone and agreed to put in place a confidentiality agreement to permit the parties to exchange benchmarking and similar information in order to evaluate possible areas of cooperation between the companies.
On March 30, 2011, Ecolab and Nalco entered into a mutual confidentiality agreement to permit the parties to exchange benchmarking and similar information.
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Beginning in early April 2011, the companies exchanged certain business and financial information, including non-public internal benchmarking information, such as data related to raw material usage, plant operation, indirect expenses and administrative costs, intended to permit the companies to compare and evaluate certain productivity and other data.
On April 21, 2011, Ecolab met with representatives of BofA Merrill Lynch to review the market dynamics and relative attractiveness of the global water services market and various strategies for expanding Ecolab's WEW business. The strategies reviewed included the acquisition of a series of smaller, regional water treatment companies, the acquisition of water filtration equipment providers and the acquisition of or merger with a national or global water treatment services provider, including Nalco.
On May 5, 2011, at a regularly-scheduled meeting of the Ecolab board of directors, Mr. Baker updated the board with respect to the continuing discussions with Nalco and discussed with the board several possible strategic combinations, including combinations involving companies that Ecolab routinely monitors as potential acquisition candidates, including in other areas of strategic interest such as healthcare. Some of these companies had been approached by Ecolab in the past, but no transaction was ultimately completed. During this update, there was a particular focus on a possible combination with Nalco, which the board supported further investigating.
In early May, Ecolab began an extensive review of Nalco and the benefits of a combination with Nalco. During the review process, Ecolab engaged Baker & McKenzie LLP, or Baker & McKenzie, to provide legal advice and other advisors to provide expertise in other areas.
On May 17, 2011, Mr. Baker along with members of Ecolab's senior management met with Mr. Fyrwald and members of Nalco's senior management to conduct a benchmarking exercise and further explore the potential opportunities and benefits of a range of possible collaborations. In addition, Mr. Baker and Mr. Fyrwald discussed the possibility of pursuing a business combination between the two companies. Mr. Baker indicated that he would like to meet with Mr. Fyrwald and the appropriate directors of the Nalco board for further discussions regarding a potential business combination. Mr. Baker emphasized that Ecolab would only conduct such discussions on a consensual basis.
Mr. Baker kept Ecolab's lead independent director, Jerry W. Levin, as well as the other members of the board informed of the discussions with Nalco through his routine calls and communications with them.
On May 17 and May 18, 2011, Mr. Fyrwald contacted members of the Nalco board to provide a general description of his meeting with Mr. Baker. Mr. Fyrwald also proposed to the Nalco directors that the Nalco board discuss Ecolab's interest in pursuing a potential transaction at a meeting of the Nalco board.
On May 20, 2011, Ecolab requested BofA Merrill Lynch to act as its financial advisor in connection with the potential transaction with Nalco. Subsequently, on June 14, 2011, Ecolab engaged BofA Merrill Lynch formally to act as its financial advisor in connection with the potential transaction. Ecolab selected BofA Merrill Lynch as its financial advisor for the merger because if its expertise in advising clients in merger and acquisition transactions and, in particular because of its knowledge of the water treatment market. In this regard, Ecolab had worked previously with BofA Merrill Lynch representatives on reviewing the water treatment market and identifying and considering various water treatment providers as potential merger or acquisition candidates. In addition, Ecolab had previously worked with BofA Merrill Lynch in other investment banking areas, including bank financing and capital market transactions and believed that BofA Merrill Lynch had a strong team capable of providing Ecolab valuable advice in the context of the merger discussions, as well as the related financing transactions.
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On May 24, 2011, the Nalco board met telephonically to review and discuss Mr. Fyrwald's discussions with Mr. Baker and discuss a potential transaction with Ecolab. During this meeting, Mr. Fyrwald presented, among other things, general background information on Ecolab. Additionally, Mr. Fyrwald reported to the Nalco board the details of his May 17, 2011 meeting with Mr. Baker, which included Ecolab's description of the potential advantages of a business combination (including a business-model and cultural fit) between the two parties and Mr. Baker's desire to meet with Mr. Fyrwald and the appropriate directors of the Nalco board for further discussions. After discussion, the Nalco board indicated to Mr. Fyrwald its support to evaluate the strategic fit and benefits of a combination of the companies and its desire to participate in the proposed meeting, and agreed on emphasizing to Mr. Baker the importance of a material premium for Nalco stockholders in the Nalco board's evaluation of a business combination.
The Nalco board also discussed the retention of a financial advisor and the preparation of valuation analysis of Nalco in various strategic scenarios, including Nalco on a stand-alone basis and Nalco in the event of a business combination. Nalco subsequently retained Goldman Sachs to act as its financial advisor, based on Goldman Sach's qualifications, experience and reputation. Nalco also retained Cravath, Swaine & Moore LLP, or Cravath, to act as its legal advisor.
On June 1, 2011, at a special meeting of the Ecolab board of directors, Ecolab senior executives presented an extensive review of Nalco and the strategic fit and potential benefits of a business combination with Nalco, and Mr. Baker advised the board regarding the status of preliminary discussions between the respective senior managements of Ecolab and Nalco concerning a possible business combination transaction between the companies. During its presentation of the strategic fit and potential benefits of a potential business combination with Nalco, Ecolab senior management noted that a merger with Nalco, one of the world's leading providers of water and energy services, would allow Ecolab to significantly enhance Ecolab's growth prospects by increasing Ecolab's ability to meet its customers' growing needs in the area of water management, particularly its industrial, hospitality and healthcare customers. Also, it would open up new opportunities in the industrial and energy markets. Further, the companies were similar in culture, business model and technology approach. Finally, there were significant cost synergies that could be realized in procurement, corporate general and administrative functions overlap, and supply chain consolidation. Accordingly, a potential business combination with Nalco represented a potentially attractive opportunity to create stockholder value.
On June 2, 2011, Mr. Fyrwald and Mr. Baker had a further discussion about a possible business combination between the companies. In the conversation, Mr. Fyrwald emphasized the importance of value to Nalco stockholders, both in terms of Nalco stockholders receiving a premium to Nalco's current stock price as well as the opportunity to participate in the strong business performance, accelerated growth and other opportunities expected of the combined company as a stockholder of the combined company. Mr. Baker also conveyed to Mr. Fyrwald Ecolab's interest in potentially offering Mr. Fyrwald employment with the combined company in the event of a business combination transaction between the companies. Mr. Baker added that Ecolab considered it important that Nalco line management continue with the combined company.
On June 6, 2011, Mr. Baker and Mr. Levin met with Mr. Fyrwald and Mr. Chase to discuss the status of the exchange of information between the companies and the possible forms of a business relationship between the companies, including a potential business combination. Mr. Baker and Mr. Levin advocated the potential advantages of a business combination between the two companies, including, among others, the business-model and cultural fit of the two companies, the possibility of realizing meaningful cost synergies from eliminating redundant overhead support infrastructure, the potential for greater supply chain efficiencies and possible sales synergies from providing more comprehensive water influent to water effluent programs within various customer segments. They also indicated that Ecolab was interested in pursuing such a transaction. Following the meeting, Mr. Chase provided the Nalco board with a report on the meeting via e-mail.
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On June 7 and June 8, 2011, Mr. Fyrwald had telephone conversations with each member of the Nalco board, individually, to provide additional details relating to the June 6 meeting with Ecolab (including additional information regarding Ecolab) and to discuss the negotiation process going forward.
On June 9, 2011, in light of the shift in the discussion between the companies to focus on a possible business combination, Ecolab and Nalco entered into a new confidentiality agreement that included customary "stand still" and employee non-solicitation provisions applicable to both parties.
On June 14, 2011, Mr. Fyrwald and Mr. Chase met for breakfast in Shanghai, China. During the course of that meeting, they discussed the negotiation process regarding the potential business combination with Ecolab and the upcoming Nalco board meeting.
On June 16, 2011, at a regularly scheduled meeting of the Nalco board, the Nalco board met in Shanghai, China to review and discuss various matters in connection with the possible business combination with Ecolab. Representatives of Nalco's senior management and Nalco's financial and legal advisors also participated in the meeting. A representative of Cravath discussed the fiduciary duties of the Nalco board in connection with the evaluation of a business combination proposal, and the Nalco board engaged in an extensive discussion of its fiduciary duties. Representatives of Goldman Sachs reviewed its preliminary financial analyses of Nalco and a potential business combination with Ecolab. At the meeting, the Nalco board discussed, among other things, the business rationale underlying a potential business combination with Ecolab, including an analysis of the geographic and market concentration of each company, the potential structure for a transaction, including an acquisition and a merger of equals, Goldman Sachs' preliminary financial analyses of Nalco and a potential business combination, including management's analysis of potential synergies, the governance implications of a potential business combination and the expected capital structure of a combined company in comparison to the capital structure of each of Ecolab and Nalco on a stand-alone basis. The Nalco board considered Ecolab's superior credit profile and investment grade debt rating and the expectation that the combined company will have a stronger debt rating and a superior credit profile than Nalco on a stand-alone basis. Additionally, the Nalco board considered that the combined company is expected to have a strengthened balance sheet, a significant reduction in leverage, and greater liquidity and resources for future growth opportunities in comparison to Nalco on a stand-alone basis, including the potential for the combined company to pursue acquisitions and fund other strategic opportunities that might otherwise not be available to Nalco as a result of its lack of balance sheet flexibility and its higher cost of capital. The Nalco board also discussed other potential acquirers that may have an interest in an acquisition of Nalco. Additionally, the Nalco board had discussions regarding the possibility that Mr. Fyrwald and other members of Nalco's management team would be offered employment with the combined company by Ecolab.
Also on June 16, 2011, at a regularly scheduled meeting of the Ecolab board of directors, the Ecolab board received a report from Mr. Baker regarding recent discussions concerning a possible transaction with Nalco, and other members of Ecolab's senior management provided reports on business, financial and legal aspects of Nalco based on the due diligence review conducted by Ecolab and its advisors through the date of the meeting. During the presentation, Ecolab management reviewed the expected financial impact on Ecolab of a merger with Nalco at different prices for Nalco's shares and assuming achievement of the estimated level of cost synergies. The review included, among other things, an analysis of the expected accretion to Ecolab's earnings per share, Ecolab's post-merger capital structure and future growth expectations. Management also presented its cost synergy estimates. Ecolab management summarized its findings from the business and legal due diligence that it had completed to date, covering such areas as its assessment of the attractiveness of the Nalco energy services business as well as the risks in operating in this industry. Legal due diligence topics included an assessment of Nalco's pending litigation and the regulatory requirements of Nalco's business. The Ecolab board of directors also reviewed the implied value of Nalco on a stand-alone basis estimated
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using Ecolab management's earnings expectations for Nalco based on the due diligence conducted to date. Representatives of BofA Merrill Lynch provided a preliminary presentation to the Ecolab board of directors regarding the potential financial terms of a possible transaction. BofA Merrill Lynch's presentation was based, in part, on certain financial forecasts relating to Nalco prepared by management of Ecolab. Representatives of Baker & McKenzie provided an overview regarding the fiduciary duties of the Ecolab board of directors in connection with a possible merger involving Nalco and responded to questions from the directors regarding the legal structure of a possible transaction, including the structure of a tax-free merger.
Following a discussion by the Ecolab board of directors at the June 16 meeting, the board authorized Ecolab's senior management to deliver to Nalco a preliminary non-binding proposal regarding a merger between Ecolab and Nalco. The proposal contemplated that the merger consideration payable to Nalco's stockholders would consist of shares of Ecolab common stock based on an exchange ratio of 0.592 Ecolab shares for each share of Nalco common stock, representing a nominal value of approximately $32.50 per Nalco share based on the then-current trading price of Ecolab's common stock. The proposal also provided for a $1.5 billion share repurchase program by Ecolab to be completed within 12 months following the closing of the merger transaction. The purpose of the share repurchase program was to offset the dilutive impact of an all-stock merger structure (versus an all-cash or cash-and-stock mix of consideration) and allow Ecolab to achieve a more efficient capital structure after giving effect to the merger and the repurchase program, thus benefiting the stockholders of Ecolab, including Nalco stockholders who receive Ecolab shares as merger consideration.
At its June 16, 2011 meeting, the Ecolab board of directors also designated a special transaction advisory committee, consisting of independent directors Mr. Levin, Jerry A. Grundhofer and Robert L. Lumpkins. Mr. Levin was chosen for the committee based on his role as Ecolab's lead independent director and his experience in mergers and acquisitions. Mr. Grundhofer and Mr. Lumpkins also possess significant merger and acquisition experience and had expressed their desire to participate on the committee. The committee was formed primarily for the purpose of facilitating ongoing communication between Ecolab's directors and senior management during periods between meetings of Ecolab's full board of directors. Accordingly, the Ecolab board of directors did not delegate to the committee authority to directly negotiate or approve a definitive merger agreement relating to a transaction with Nalco.
On June 17, 2011, the Nalco board received Ecolab's proposal during its meetings in Shanghai, China. The Nalco board, along with its legal and financial advisors, discussed Ecolab's $32.50 per share proposal and the contents of a potential response to Ecolab's proposal. After extensive discussion regarding the appropriate response, the Nalco board directed Mr. Fyrwald to convey to Mr. Baker that although they considered the strategic logic of the combination sound, Ecolab's proposal was not a sufficient starting point for further negotiations, but Nalco would be receptive to further discussions at a materially higher valuation and would be willing to discuss a transaction with a stock-cash mix of merger consideration. The Nalco board determined that it would be willing to discuss a stock-cash mix of merger consideration because it could possibly allow Ecolab to increase its price, which could result in a higher value to Nalco stockholders, would provide Nalco stockholders with the choice to receive cash, shares of Ecolab common stock or a combination of the two based on each stockholder's individual preference and would allow Nalco stockholders who receive stock as a component of the merger consideration to participate in the strong business performance, accelerated growth and other opportunities that could result from the combined company. Following the meeting, Mr. Fyrwald called Mr. Baker to relay the Nalco board's message. The Nalco board also requested Goldman Sachs to prepare an analysis of Ecolab's proposal and also to relay the Nalco board's message to BofA Merrill Lynch, Ecolab's financial advisor. Following the meeting, representatives of Goldman Sachs relayed the Nalco board's message to representatives of BofA Merrill Lynch, as requested by the Nalco board. The
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Nalco board also discussed the governance implications of a potential business combination. In addition, the Nalco board requested that Mr. Chase and Daniel S. Sanders, a Nalco director, assist in board meeting preparations from time to time going forward.
After receiving Nalco's response to Ecolab's June 16 proposal, Mr. Baker had several conversations with members of Ecolab's special transaction advisory committee to share Nalco's response and agree on next steps.
On June 24, 2011, Mr. Baker and Mr. Fyrwald spoke by phone to further discuss Nalco's response to Ecolab's June 16 proposal. During the call, Mr. Baker indicated that Ecolab would need to have more detailed information about Nalco's business to determine whether a higher valuation for Nalco was warranted. Following this discussion, Mr. Fyrwald spoke with each member of the Nalco board by telephone to discuss a potential exchange of selected financial forecast data with Ecolab in order to enable Ecolab to determine whether a materially higher valuation of Nalco was warranted and would allow Ecolab to increase its offer. Each member of the Nalco board authorized Mr. Fyrwald to agree to such exchange.
On June 26, 2011, Mr. Baker and Mr. Fyrwald also spoke by phone to further discuss Nalco's response to Ecolab's June 16 proposal. Mr. Baker and Mr. Fyrwald agreed to continue discussions regarding a possible transaction. They further agreed that the companies would exchange certain additional information, including selected internal financial forecasts, in order to permit further discussions regarding alternative financial terms and to provide Ecolab with the data necessary to determine whether a materially higher valuation of Nalco could be reached.
During the week of June 27, 2011, Ecolab and Nalco exchanged selected internal financial forecasts.
On June 30, 2011, Mr. Baker held a telephonic meeting with the members of the Ecolab special transaction advisory committee to update the committee members on the status of the discussions with Nalco and to review certain information expected to be discussed at a meeting of the full Ecolab board scheduled for the following day.
On July 1, 2011, the Ecolab board of directors met telephonically to evaluate the status of discussions between the respective senior managements of Ecolab and Nalco. During the meeting, the Ecolab board of directors received a report from Mr. Baker regarding Nalco's response to the June 16 proposal, an overview of the impact of recent market movement in the price of both companies' shares and an overview of the additional financial and other due diligence review conducted by Ecolab and its advisors through the date of the meeting. Mr. Baker noted that since Ecolab's June 16 proposal letter through the date immediately prior to the Ecolab board meeting, Ecolab's stock price had increased 2.7% and Nalco's stock price had increased 6.6%, reducing the premium implied by Ecolab's June 16 proposal from 24.9% to 20.0%. Representatives of BofA Merrill Lynch provided a preliminary presentation to the Ecolab board of directors regarding the potential financial analysis and implications of various offer prices, such as the implied premium on Nalco's stock price, the expected Ecolab earnings per share accretion due to the transaction, the implied earnings multiple (with and without synergies) and the total transaction value. BofA Merrill Lynch also reviewed the impact of various alternative consideration structures. Understanding that Ecolab needed to increase its offer price in order to receive the support of the Nalco board of directors for the merger, Ecolab management along with BofA Merrill Lynch presented to the Ecolab board of directors alternative transaction structures that included cash for a portion of the merger consideration. Given the relatively low cost of debt, the cash portion allowed for a more attractive accretive impact of the merger to Ecolab's earnings per share than an all-stock transaction structure. While at various times in the process, the Ecolab board of directors considered structures that included all stock, all cash, a 50%/50% stock-cash mix and a 70%/30% stock-cash mix, the Ecolab board determined that a 70%/30% consideration mix was most appropriate because this mix would (i) allow Ecolab to increase its offer price from its original offer
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(which contemplated an all-stock merger) while maintaining attractive earnings per share accretion (more attractive than an all-stock structure), (ii) provide Nalco stockholders with the opportunity to participate in the strong business performance, accelerated growth and other opportunities expected of the combined company as a stockholder of the combined company, (iii) maintain the tax-free nature of the stock portion of the transaction for Nalco stockholders, (iv) allow Ecolab to maintain an investment grade debt rating, which the Ecolab board considered important to permit Ecolab to take advantage of future opportunities, such as additional acquisitions, while minimizing the risks of a highly leveraged capital structure at a time of a relatively uncertain financing environment and (v) provide Ecolab more flexibility to adjust its capital structure through share repurchases as market conditions develop.
Following a discussion by the Ecolab board of directors, the board authorized Ecolab's senior management to deliver to Nalco a revised non-binding proposal regarding a merger between Ecolab and Nalco. The revised proposal contemplated a merger in which Nalco's stockholders would receive shares of Ecolab common stock in exchange for approximately 70% of the outstanding Nalco shares and would receive cash for the remaining 30% of the outstanding Nalco shares, based on a fixed exchange ratio to be determined by the parties shortly before the execution of a definitive merger agreement. The revised proposal provided for a nominal price of $36.15 per Nalco share. The Ecolab board of directors authorized Mr. Baker to conduct further discussions with Nalco's senior management regarding the financial and other terms of a possible merger, including anticipated modifications to the amount and composition of the merger consideration, subject to approval by the Ecolab board of directors of the final terms of a possible merger.
On July 1, 2011, Nalco received the revised proposal from Ecolab. On July 3, 2011, Mr. Fyrwald and Mr. Chase met to assist in the preparation for the upcoming July 5, 2011 Nalco board meeting, at the request of the Nalco board. Mr. Fyrwald and Mr. Chase also discussed Ecolab's revised proposal and the current status of discussions regarding a potential business combination.
From July 1 through July 8, 2011, Mr. Baker and Mr. Fyrwald participated in multiple phone calls regarding the terms of Ecolab's revised proposal and possible alternative terms. In these calls, Mr. Baker explained the various terms of Ecolab's proposal, including the consideration mix, fixed exchange ratio, Ecolab's due diligence requirements in order to enter into a definitive agreement, timing expectations and the methodology and assumptions underlying the financial aspects of Ecolab's proposal. In various calls, Mr. Fyrwald also sought a higher acquisition price for Nalco's shares. During these conversations, Mr. Fyrwald conveyed to Mr. Baker that the most important objective was obtaining the highest value possible for Nalco stockholders. During this period, Mr. Baker spoke by phone on several occasions with members of the Ecolab special transaction advisory committee and other individual Ecolab board members to inform them of the status of discussions with Nalco.
On July 4, 2011, Mr. Fyrwald, Mr. Chase and Mr. Sanders met to assist in the preparation for the upcoming July 5, 2011 Nalco board meeting, at the request of the Nalco board. They discussed the draft Goldman Sachs presentation materials related to the potential business combination with Ecolab to be presented at the upcoming board meeting.
On July 5, 2011, the Nalco board met telephonically. Representatives of Nalco's senior management and Nalco's legal and financial advisors also participated in the meeting. Representatives of Goldman Sachs reviewed the revised proposal from Ecolab and Goldman Sachs' preliminary financial analyses of Nalco and the proposed transaction. Representatives of Goldman Sachs also reviewed certain strategic alternatives to the proposed business combination with Ecolab (including proceeding with its existing strategic plan on a stand-alone basis) and other potential strategic partners that might be interested in pursuing a business combination transaction with Nalco. The Nalco board identified a number of risks associated with contacting other potential acquirers, including, among others, the potential for a leak and the possibility that discussions with a third party acquirer would not remain confidential, the risk that a leak could disrupt and damage Nalco's business and adversely affect
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Nalco's relationships with its customers, suppliers and any other persons with whom Nalco has a business relationship, the risk that a leak could create difficulties in attracting and retaining key employees and the risk that a leak could disrupt the negotiations, and jeopardize the possibility of a transaction, with Ecolab. Given the risks identified above and the benefits of the proposed business combination transaction with Ecolab, the Nalco board decided not to contact any of the other potential third party strategic acquirers. After extensive discussion, including input from Nalco's senior management and legal and financial advisors, the Nalco board concluded that Ecolab's proposed price of $36.15 per share was not acceptable and that the Nalco board would request a higher price than the current offer from Ecolab. The Nalco board authorized Mr. Fyrwald to propose a price of $40.92 per share in response to Ecolab's revised proposal.
Following the Nalco board meeting, Mr. Fyrwald spoke with Mr. Baker to tell him that the proposed price of $36.15 per share was not acceptable and proposed a price of $40.92 per share. Mr. Baker indicated that he would contact Mr. Fyrwald with a response later in the week. Mr. Fyrwald then requested that Goldman Sachs conduct additional financial analyses regarding a potential transaction, including providing additional information regarding the potential capital structures that might be available to Nalco on a stand-alone basis. Mr. Baker consulted by phone with members of Ecolab's special transaction advisory committee to share Nalco's proposal and agree on a response.
On July 8, 2011, Ecolab submitted a revised proposal to Nalco providing for an increased nominal price of $38.75 per share of Nalco common stock. Also on July 8, 2011, Mr. Baker and Mr. Fyrwald spoke by phone regarding Ecolab's revised proposal and discussed certain alternative transaction terms.
On July 10, 2011, the Nalco board held a special meeting in Chicago, Illinois to discuss the revised proposal received from Ecolab. Representatives of Nalco's senior management and Nalco's legal and financial advisors also participated in the meeting. Representatives of Goldman Sachs reviewed Ecolab's revised proposal and Goldman Sachs' preliminary financial analyses of Nalco and the proposed transaction. Representatives of Goldman Sachs also reviewed certain strategic alternatives to the proposed business combination with Ecolab (including proceeding with its existing strategic plan on a stand-alone basis) and other potential strategic partners that might be interested in pursuing a business combination transaction with Nalco. Given the risks discussed at the July 5, 2011 meeting of the Nalco board, and reiterated at the July 10 meeting, and the benefits of the proposed business combination transaction with Ecolab, the Nalco board decided not to contact any of the other potential third party strategic acquirers. A representative of Cravath reviewed the Nalco board's fiduciary duties in connection with the proposed transaction. After discussion, the Nalco board authorized Nalco's senior management to further discuss Ecolab's proposal with representatives of Ecolab, and authorized the negotiation of a merger agreement and the commencement of the next step in the due diligence process, an in-depth due diligence review. In addition, the Nalco board authorized Mr. Fyrwald to accept Ecolab's revised proposal, but also directed Mr. Fyrwald to attempt to obtain a higher price and to propose a price of $39.50 per share in response to Ecolab's revised proposal.
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Following the Nalco board meeting, Mr. Fyrwald spoke with Mr. Baker to propose a price of $39.50 per share in response to Ecolab's revised proposal. Mr. Baker indicated that he would contact Mr. Fyrwald with a response. Following this conversation, Mr. Baker consulted by phone with members of Ecolab's special transaction advisory committee to share Nalco's request and agree on a response.
On July 11, 2011, Mr. Baker indicated to Mr. Fyrwald by e-mail that Ecolab was unwilling to meet the requested $39.50 price, but would increase its proposal to acquire the outstanding shares of Nalco to a nominal price of $38.80 per share, and confirmed that this proposal represented Ecolab's best and final offer.
Also on July 11, 2011, Mr. Baker and Mr. Fyrwald spoke by phone and agreed in principle to proceed with negotiating a merger, subject to board approval, with a nominal price of $38.80 per Nalco share, in which Nalco's stockholders would receive shares of Ecolab common stock in exchange for approximately 70% of the outstanding Nalco shares and would receive cash for the remaining 30% of the outstanding Nalco shares, based on a fixed exchange ratio. The specific date prior to signing the definitive merger agreement that would be used to calculate the exchange ratio was subject to additional discussion between Ecolab and Nalco.
On July 12, 2011, the respective senior managements of Ecolab and Nalco met to begin a mutual confirmatory business, financial and legal due diligence review of both companies. The management teams subsequently coordinated numerous follow-on discussions supported by information and document exchanges from July 12 through July 19, 2011.
On July 13, 2011, Baker & McKenzie delivered to Cravath a preliminary draft of a merger agreement between Ecolab and Nalco.
On July 14, 2011, representatives of Baker & McKenzie and Cravath conducted a phone conference to discuss certain proposed changes to the draft merger agreement and the status of the respective legal due diligence reviews of Ecolab and Nalco. It was agreed during the phone conference that Cravath would prepare a revised draft of the merger agreement reflecting comments on behalf of Nalco.
On July 15, 2011, the Nalco board met telephonically to review and discuss the current status of the discussions regarding a potential business combination with Ecolab. Representatives of Nalco's senior management and Nalco's legal advisor also participated in the meeting. Mr. Fyrwald provided the Nalco board with an update on the on-going negotiations with Ecolab. Kathryn Mikells, Nalco's chief financial officer, updated the Nalco board on the status of due diligence, and a representative of Cravath discussed the status of the merger agreement negotiations. The representative of Cravath also discussed the Nalco board's fiduciary duties in connection with evaluating the potential business combination with Ecolab.
On July 15, 2011, Cravath delivered to Baker & McKenzie a revised draft merger agreement. Among other proposed changes and comments, the revised draft included proposals on behalf of Nalco with respect to (i) provisions relating to a stock-cash election to be made by Nalco stockholders, including the procedures for stockholder elections and the adjustment and reallocation mechanism to achieve a 70%/30% stock-cash mix of merger consideration, (ii) changes to the representations and warranties of Nalco to include additional materiality, material adverse effect and knowledge qualifications, (iii) changes to the representations and warranties of Ecolab so that they were substantially parallel to the representations and warranties of Nalco in the merger agreement, (iii) the inclusion of a provision, substantially parallel to a comparable provision applicable to Nalco, prohibiting Ecolab from soliciting or engaging in discussions or negotiations with third parties with respect to competing acquisition transactions involving Ecolab, (iv) changes to the provisions of the draft merger agreement regarding the ability of the Nalco board of directors to change its recommendation in favor of the merger to Nalco's stockholders, (v) the elimination of or changes to certain pre-closing
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covenants and closing conditions, including covenants and conditions relating to compliance with competition law notification and approval requirements in connection with the merger, (vi) changes to the termination fee provisions of the merger agreement, including the addition of a termination fee payable by Ecolab under circumstances similar to those applicable to Nalco, and (vii) proposed termination fee amounts equal to 1.5% of Nalco's equity value implied by the merger consideration and Ecolab's market capitalization, respectively.The revised merger agreement contemplated a fixed exchange ratio to be agreed by the parties prior to entering into a definitive merger agreement, but did not include a specific proposed exchange ratio.
On July 16, 2011, following a review of the July 15 draft with Ecolab's senior management, Baker & McKenzie delivered to Cravath a revised draft of the merger agreement that included, among other proposed changes and comments, proposals on behalf of Ecolab with respect to (i) changes relating to the mechanism for the conversion of Nalco stock options and other equity awards in the merger, (ii) changes to certain pre-closing covenants and closing conditions, including pre-closing operating covenants and covenants and conditions relating to compliance with competition law notification and approval requirements in connection with the merger, (iii) changes to certain provisions in the merger agreement relating to employee and employee benefit transition matters, (iv) the inclusion of a provision relating to the coordination of dividends by Ecolab and Nalco during the period prior to the completion of the merger and (v) changes to certain termination and termination fee provisions in the merger agreement, including the proposed addition of a provision permitting Ecolab to terminate the agreement under certain circumstances following its receipt of an unsolicited superior acquisition proposal. The revised draft of the merger agreement did not propose specific termination fee amounts or a specific exchange ratio.
On July 17, 2011, the respective senior managements of Ecolab and Nalco, as well as representatives of their respective financial advisors, BofA Merrill Lynch and Goldman Sachs, met in Minneapolis, Minnesota to conduct joint management presentations and business diligence sessions.
On July 17 and July 18, 2011, representatives of Baker & McKenzie and Cravath, together with members of the respective senior managements of Ecolab and Nalco, conducted numerous phone conferences to finalize the merger agreement and exchanged multiple drafts of the merger agreement. During this period, the parties reached agreement on all of the material terms of the merger agreement, including $135 million and $275 million termination fees payable by Nalco and Ecolab, respectively, under certain circumstances under the merger agreement. The Nalco board determined that the agreed-upon termination fee would not preclude a third party acquirer from making a competing proposal for Nalco, in the event a third party acquirer was interested in acquiring Nalco. The parties also agreed that the fixed exchange ratio would be calculated using the closing price of Ecolab's common stock on the last trading day before the execution of the definitive merger agreement.
On July 18, 2011, the Nalco board met telephonically to review and discuss various matters in connection with the possible business combination with Ecolab. Representatives of Nalco's senior management and Nalco's legal and financial advisors also participated in the meeting. Nalco's senior management updated the Nalco board on the due diligence process and a representative of Cravath updated the Nalco board on the status of the merger agreement negotiations.
On July 19, 2011, the Nalco Compensation Committee of the Nalco board met to review and discuss the status of various compensation matters in connection with the potential business combination with Ecolab, including, among other things, Ecolab's benefits plans and the severance and change of control implications of a possible business combination described in the sections titled "Interests of Nalco Directors and Executive Officers in the Merger" and "The Merger AgreementTreatment of Nalco Equity Compensation Awards" beginning on pages 111 and 130, respectively.
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On July 19, 2011, the Nalco board met telephonically to review and discuss various matters in connection with the possible business combination with Ecolab. Prior to the meeting, the Nalco board had been provided with a set of meeting materials, including a summary of the proposed merger agreement, a copy of the current draft of the merger agreement, financial analyses prepared by Goldman Sachs and a set of draft board resolutions. Representatives of Nalco's senior management and Nalco's legal and financial advisors also participated in the meeting. At the meeting representatives of Goldman Sachs reviewed with the Nalco board Goldman Sachs' financial analyses of Nalco and the proposed transaction as further described below under "Opinion of Nalco's Financial Advisor" beginning on page 102. In connection with the deliberation by the Nalco board, Goldman Sachs rendered to the Nalco board Goldman Sachs' oral opinion, confirmed by delivery of a written opinion dated July 19, 2011, that, as of such date and subject to the limitations and assumptions set forth therein, the stock consideration and cash consideration to be paid to the holders of Nalco common stock, taken in the aggregate, was fair, from a financial point of view to such holders, as more fully described below under "Opinion of Nalco's Financial Advisor" beginning on page 102. Members of Nalco's senior management reviewed with the Nalco board the strategic rationale and potential benefits and risks of the proposed transaction and updated the board on its diligence review. At the meeting, a representative from Cravath again reviewed the fiduciary duties of the directors, in the context of considering a company's strategic alternatives, including the proposed merger with Ecolab. The representative of Cravath also described and reviewed the principal terms of the proposed merger agreement. After discussion, the members of the Nalco board then unanimously approved the merger agreement in accordance with Delaware law, declared it advisable, determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are in the best interests of Nalco and its stockholders and unanimously recommended that Nalco's stockholders adopt the merger agreement. The Nalco board authorized the appropriate officers of Nalco to execute and deliver the merger agreement and related documentation.
The Ecolab board of directors met telephonically on the evening of July 19, 2011. Prior to the meeting, Ecolab's directors had been provided with a set of meeting materials, including a copy of a proposed definitive merger agreement, a detailed summary of the terms and conditions of the proposed merger agreement, a financial analysis of the consideration proposed to be paid in the merger prepared by BofA Merrill Lynch and a set of draft board resolutions. Members of Ecolab's senior management, together with representatives of BofA Merrill Lynch and Baker & McKenzie, were present at the meeting. Mr. Baker provided an overview of further developments relating to a possible merger with Nalco and informed the Ecolab board that due diligence had been completed and negotiations regarding a definitive merger agreement had been finalized. Mr. Baker also noted that the Nalco board of directors had concluded their meeting and had unanimously approved the merger agreement. James J. Seifert, Ecolab's general counsel and secretary, provided the board with a summary of the legal and regulatory due diligence conducted with respect to Nalco, summarizing an assessment of various risk areas, including litigation/general liability, employment law, regulatory, environmental, compliance, commercial contracts and intellectual property, and also presented an overview of the material terms and conditions of the proposed merger agreement. Also at the meeting, BofA Merrill Lynch reviewed with Ecolab's board of directors its financial analysis of the merger consideration to be paid in the merger and delivered to Ecolab's board of directors an oral opinion, which was confirmed by delivery of a written opinion dated July 19, 2011, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the merger consideration to be paid in the merger by Ecolab was fair, from a financial point of view, to Ecolab. BofA Merrill Lynch's opinion is more fully described in the section titled "Opinion of Ecolab's Financial Advisor" beginning on page 91. Following a discussion of the foregoing matters by the directors, the Ecolab board of directors unanimously approved the merger agreement, declared it advisable, approved the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, determined that the merger agreement and the transactions contemplated thereby, including the merger and the
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issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, are in the best interests of Ecolab and its stockholders, and unanimously recommended that Ecolab's stockholders approve the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger. The Ecolab board authorized the appropriate Ecolab officers to execute and deliver the merger agreement on behalf of Ecolab.
The merger agreement was executed shortly after the conclusion of the July 19, 2011 meeting of the Ecolab board of directors. Ecolab and Nalco announced the transaction through separate press releases issued prior to the open of the U.S. financial markets on July 20, 2011.
Ecolab's Reasons for the Merger; Recommendation of the Ecolab Board of Directors
In reaching its decision to approve the merger agreement and recommend approval of the issuance of shares of Ecolab common stock to Nalco's stockholders pursuant to the merger, the Ecolab board of directors consulted with Ecolab's senior management, as well as with Ecolab's financial and legal advisors, and also considered a number of factors that the Ecolab board of directors viewed as supporting its decision.
The principal factors that the Ecolab board of directors viewed as supporting its decision are:
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In addition to considering the factors described above, the Ecolab board of directors also considered the following factors:
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(v) provide Ecolab with more flexibility to adjust its capital structure through share repurchases as market conditions develop;
The Ecolab board of directors weighed the foregoing against a number of potentially negative factors, including:
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This discussion of the information and factors considered by Ecolab's board of directors in reaching its conclusions and recommendation includes the material factors considered by the Ecolab board of directors, but is not intended to be exhaustive. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, Ecolab's board of directors did not find it useful and did not attempt to assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the merger agreement and to recommend that Ecolab stockholders vote "FOR" the share issuance proposal. In addition, individual members of the Ecolab board of directors may have assigned different weights to different factors. The Ecolab board of directors conducted an overall analysis of the factors described above, including through discussions with, and questioning of, Ecolab's senior management and outside financial and legal advisors.
The Ecolab board of directors unanimously approved the merger agreement, declared it advisable, approved the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Ecolab common stock to Nalco stockholders pursuant to the merger, are in the best interests of Ecolab and its stockholders. The Ecolab board of directors accordingly unanimously recommends that Ecolab's stockholders vote "FOR" the share issuance proposal.
Nalco's Reasons for the Merger; Recommendation of the Nalco Board of Directors
The Nalco board of directors has unanimously approved the merger agreement, declared it advisable and determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are in the best interests of Nalco and its stockholders. Accordingly, the Nalco Board unanimously recommends that Nalco stockholders vote "FOR" the merger proposal.
Considerations and Factors Weighing in Favor of the Merger
In reaching its decision to approve the merger agreement, the Nalco board of directors consulted with management, as well as Nalco's legal and financial advisors, and considered a variety of factors weighing positively in favor of the merger, including, without limitation, the following:
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growth, development and profitability of a combined company (taking into account the results of Nalco's due diligence review of Ecolab) in comparison to Nalco on a stand-alone basis;
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mix of merger consideration, as described in the section titled "The Merger AgreementMerger Consideration" beginning on page 127) which affords Nalco stockholders both the opportunity to participate in the strong business performance, accelerated growth and other opportunities expected of the combined company through the stock component and to receive cash for the value of their shares through the cash component;
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Considerations and Factors Weighing Against the Merger
The Nalco board of directors also identified and considered the potential adverse impact of other factors weighing negatively against the merger, including, but not limited to, the following:
Additional Considerations and Factors
In addition to considering the factors described above, the Nalco board of directors also identified and considered a variety of factors relevant to the merger, including, but not limited to, the following:
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The above discussion of the information and factors considered by the Nalco board of directors includes the principal information and factors, both positive and negative, considered by the Nalco board of directors, but is not intended to be exhaustive and may not include all of the information and factors considered by the Nalco board of directors. The above factors are not presented in any order of priority. In view of the variety of factors considered in connection with its evaluation, the Nalco board of directors did not quantify or assign relative or specific weights to the factors considered in reaching its conclusion that the merger agreement is advisable and in the best interests of Nalco and its stockholders. Rather, the Nalco board of directors views its position and recommendation as being based on the totality of the information presented to and considered by it. In addition, individual members of the Nalco board of directors may have given different weights to different factors. It should be noted that this explanation of the reasoning of the Nalco board of directors and certain information presented in this section is forward-looking in nature and should be read in light of the factors discussed in the section titled "Special Note Regarding Forward-Looking Statements" beginning on page 40 of this joint proxy statement/prospectus.
Certain Financial Forecasts of Ecolab and Nalco
Ecolab and Nalco do not as a matter of course publicly disclose detailed financial forecasts or projections, and Ecolab and Nalco are especially reluctant to disclose forecasts for extended periods due to the unpredictability of the underlying assumptions and estimates. However, as part of Ecolab's and Nalco's mutual due diligence review in connection with the merger, Ecolab and Nalco provided to each other, as well to their respective financial advisors in connection with their respective evaluations of the fairness of the merger consideration, certain non-public, internal financial forecasts that the managements of Ecolab and Nalco prepared regarding their respective company's future operations. Certain of the financial forecasts were also considered by the respective boards of directors of Ecolab and Nalco for purposes of evaluating the merger. The financial forecasts relating to Nalco provided to Ecolab included information for the years 2011 through 2016. The financial forecasts relating to Ecolab provided to Nalco included information for the years 2011 through 2015. Ecolab and Nalco have provided below certain information included in these financial forecasts to give stockholders and investors access to certain non-public information that was furnished to third parties.
The financial forecasts of Nalco have been prepared by, and are the responsibility of, the management of Nalco. The financial forecasts of Ecolab and Ecolab's financial forecasts of Nalco have been prepared by, and are the responsibility of, the management of Ecolab. The financial forecasts were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC or the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or with GAAP. These financial forecasts include certain non-GAAP financial measures. The footnotes to the tables below provide certain supplemental information with respect to the calculation of these non-GAAP financial measures. Certain of this supplemental information may not have been included in the financial forecasts. For further discussion regarding the
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use of non-GAAP financial measures, see the Annual Reports on Form 10-K of Ecolab and Nalco for the fiscal year ended December 31, 2010, which have been filed with the SEC and are incorporated by reference in this joint proxy statement/prospectus. In addition, the financial forecasts are unaudited and neither Ecolab's or Nalco's independent registered public accounting firm, nor any other independent auditor, has compiled, examined or performed any procedures with respect to the financial forecasts, nor have they expressed any opinion or given any form of assurance on the financial forecasts or their achievability. The reports of the independent registered public accounting firms incorporated by reference in this joint proxy statement/prospectus relate to Ecolab's and Nalco's historical financial statements. The reports do not extend to the financial forecasts and should not be read to do so. Information from the financial forecasts is not being included in this joint proxy statement/prospectus to influence your decision about whether to vote for the merger proposal or the share issuance proposal, but because these financial forecasts were provided by Nalco and Ecolab to each other, as well as to their respective financial advisors.
Furthermore, the financial forecasts:
As a result, actual results may differ materially from those contained in the financial forecasts. Accordingly, there can be no assurance that the financial forecasts will be realized.
The inclusion of the financial forecasts in this joint proxy statement/prospectus should not be regarded as an indication that any of Ecolab, Nalco or their respective affiliates, advisors, representatives or any other recipient of this information considered, or now considers, the financial forecasts to be predictive of actual future results, and the financial forecasts should not be relied upon as such. None of Nalco, Ecolab or their respective affiliates, advisors, officers, directors, partners or representatives can give you any assurance that actual results will not differ from the financial forecasts, and none of them undertakes any obligation to update or otherwise revise or reconcile the financial forecasts to reflect circumstances existing after the date the financial forecasts were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the financial forecasts are shown to be in error. Ecolab and Nalco do not intend to make publicly available any update or other revision to the financial forecasts. Further, the inclusion of the financial forecasts in this joint proxy statement/prospectus does not constitute an admission or representation by Ecolab or Nalco that this information is material. None of Ecolab, Nalco or their respective affiliates, advisors, officers, directors, partners or representatives has made or makes any representation to any stockholder or other person regarding Ecolab's or Nalco's ultimate performance compared to the information contained in the financial forecasts or that forecasted results will be achieved. Ecolab has made no representation to Nalco, and Nalco has made no representation to Ecolab, in the merger agreement or otherwise, concerning these financial forecasts. The financial forecasts were, in general, prepared solely for use by Ecolab's and Nalco's respective boards and financial advisors and are subjective in many respects and thus subject to interpretation.
88
The financial forecasts are forward-looking statements. For additional information on factors which may cause Ecolab's and Nalco's future financial results to materially vary from the financial forecasts, see the sections titled "Special Note Regarding Forward-Looking Statements" and "Risk Factors," beginning on pages 40 and 42, respectively.
Certain Financial Forecasts of Ecolab
In the course of Ecolab's and Nalco's mutual due diligence, Ecolab provided to BofA Merrill Lynch and Nalco certain non-public, internal financial forecasts for Ecolab's business for the years 2011 through 2015, which we refer to as the Ecolab forecasts. The Ecolab forecasts were prepared in connection with Ecolab's annual strategic and long-term planning process and annual budgeting process and did not include any consideration, impact or benefit from the pending merger with Nalco. The Ecolab forecasts were considered by the Ecolab board of directors for purposes of evaluating the merger and by BofA Merrill Lynch in connection with the delivery of its opinion described in the section titled "Opinion of Ecolab's Financial Advisor" beginning on page 91. Upon receipt of the Ecolab forecasts from Ecolab, Nalco provided the Ecolab forecasts to Goldman Sachs in connection with the delivery of its opinion described in the section titled "Opinion of Nalco's Financial Advisor" beginning on page 102 and to the Nalco board of directors in connection with its evaluation of the merger.
The following table presents certain information included in the Ecolab forecasts:
|
2011 | 2012 | 2013 | 2014 | 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in millions, except per share amounts) |
|||||||||||||||
Net sales |
$ | 6,691 | $ | 7,182 | $ | 7,767 | $ | 8,383 | $ | 9,036 | ||||||
Net income |
551 | 645 | 776 | 877 | 979 | |||||||||||
Adjusted net income(1) |
602 | 684 | 776 | 877 | 979 | |||||||||||
Adjusted EBITDA(2) |
1,279 | 1,456 | 1,628 | 1,811 | 2,003 | |||||||||||
Earnings per share |
$ | 2.34 | $ | 2.77 | $ | 3.40 | $ | 3.93 | $ | 4.47 | ||||||
Adjusted earnings per share(3) |
2.56 | 2.94 | 3.40 | 3.93 | 4.47 | |||||||||||
Free cash flow(4) |
$ | 457 | $ | 602 | $ | 733 | $ | 935 | $ | 1,049 |
|
2011 | 2012 | 2013 | 2014 | 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in millions) |
|||||||||||||||
Operating income |
$ | 869 | $ | 998 | $ | 1,161 | $ | 1,290 | $ | 1,432 | ||||||
Special charges related primarily to European restructuring |
52 | 46 | | | | |||||||||||
Depreciation and amortization |
358 | 412 | 467 | 521 | 571 | |||||||||||
Adjusted EBITDA |
$ | 1,279 | $ | 1,456 | $ | 1,628 | $ | 1,811 | $ | 2,003 |
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income or other performance measures derived in accordance with GAAP as a measure of operating performance or to cash flows as a measure of liquidity. Capital expenditures that were subtracted from operating cash flow to arrive at free cash flow were $375 million in 2011, $431 million in 2012, $466 million in 2013, $503 million in 2014, and $542 million in 2015. Investments in Ecolab's SAP implementation project that were subtracted from operating cash flow to arrive at free cash flow were $50 million in 2011, $50 million in 2012, and $50 million in 2013.
Certain Financial Forecasts of Nalco
In the course of Ecolab's and Nalco's mutual due diligence, Nalco provided to Goldman Sachs and Ecolab certain non-public, internal financial forecasts for Nalco's business for the years 2011 through 2016, which we refer to as the Nalco forecasts. The Nalco forecasts were considered by the Nalco board of directors for purposes of evaluating the merger and by Goldman Sachs in connection with the delivery of its opinion described in the section titled "Opinion of Nalco's Financial Advisor" beginning on page 102, and did not include any consideration, impact or benefit from the proposed merger with Ecolab.
The following table presents certain information included in the Nalco forecasts:
|
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in millions, except per share amounts) |
|
|||||||||||||||||
Net sales(1) |
$ | 4,690 | $ | 5,202 | $ | 5,572 | $ | 6,090 | $ | 6,658 | $ | 7,250 | |||||||
Net income |
336 | 358 | 409 | 467 | 533 | 621 | |||||||||||||
Adjusted EBITDA(2) |
757 | 913 | 997 | 1,096 | 1,210 | 1,336 | |||||||||||||
Earnings per share |
$ | 2.39 | $ | 2.54 | $ | 2.88 | $ | 3.26 | $ | 3.70 | $ | 4.29 | |||||||
Adjusted earnings per share(3) |
1.80 | 2.54 | 2.88 | 3.26 | 3.70 | 4.29 | |||||||||||||
Free cash flow(4)(5) |
$ | 86 | $ | 190 | $ | 254 | $ | 268 | $ | 357 | N/A |
|
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in millions) |
|||||||||||||||||||
Operating income |
$ | 726 | $ | 750 | $ | 817 | $ | 903 | $ | 998 | $ | 1,102 | ||||||||
Net gain on unusual items |
(135 | ) | | | | | | |||||||||||||
Other income/(expense) |
(5 | ) | (10 | ) | (4 | ) | (1 | ) | (3 | ) | (3 | ) | ||||||||
Noncontrolling interests |
(9 | ) | (9 | ) | (9 | ) | (11 | ) | (10 | ) | (11 | ) | ||||||||
Depreciation and amortization |
180 | 182 | 193 | 205 | 225 | 248 | ||||||||||||||
Adjusted EBITDA |
$ | 757 | $ | 913 | $ | 997 | $ | 1,096 | $ | 1,210 | $ | 1,336 | ||||||||
|
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in millions) |
||||||||||||||||
Net cash provided by operating activities |
$ | 304 | $ | 417 | $ | 498 | $ | 531 | $ | 601 | |||||||
Net earnings attributable to noncontrolling interests |
(9 | ) | (9 | ) | (9 | ) | (11 | ) | (10 | ) | |||||||
Additions to property, plant, and equipment, net |
(209 | ) | (218 | ) | (235 | ) | (252 | ) | (234 | ) | |||||||
Free cash flow |
$ | 86 | $ | 190 | $ | 254 | $ | 268 | $ | 357 | |||||||
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Ecolab's Financial Forecasts of Nalco
After review of the Nalco forecasts received from Nalco, Ecolab's management prepared an alternative version of the Nalco forecasts, which we refer to as Ecolab's forecasts of Nalco. Ecolab's forecasts of Nalco reflect Ecolab management's view of the commercial performance expectations for Nalco over the forecast period. Ecolab provided Ecolab's forecasts of Nalco to the Ecolab board of directors in connection with its evaluation of the merger and to BofA Merrill Lynch in connection with the delivery of its opinion described in the section titled "Opinion of Ecolab's Financial Advisor" beginning on page 91. Ecolab's forecasts of Nalco are referred to as the July 19 model in the section titled "Opinion of Ecolab's Financial Advisor."
The following table presents certain information included in Ecolab's forecasts of Nalco:
|
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in millions, except per share amounts) |
|
|||||||||||||||||
Net sales(1) |
$ | 4,652 | $ | 5,156 | $ | 5,540 | $ | 5,944 | $ | 6,369 | $ | 6,827 | |||||||
Net income |
319 | 341 | 401 | 456 | 516 | 575 | |||||||||||||
Adjusted EBITDA(2) |
745 | 875 | 966 | 1,062 | 1,156 | 1,244 | |||||||||||||
Free cash flow(3) |
$ | 85 | $ | 236 | $ | 255 | $ | 351 | $ | 431 | $ | 482 |
|
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in millions) |
||||||||||||||||||
Operating income |
$ | 703 | $ | 709 | $ | 789 | $ | 862 | $ | 941 | $ | 1,020 | |||||||
Net gain on unusual items |
(123 | ) | | | | | | ||||||||||||
Other income/(expense) |
(8 | ) | (10 | ) | (10 | ) | (10 | ) | (10 | ) | (10 | ) | |||||||
Noncontrolling interests |
(9 | ) | (9 | ) | (10 | ) | (10 | ) | (10 | ) | (10 | ) | |||||||
Depreciation and amortization |
182 | 185 | 197 | 220 | 235 | 244 | |||||||||||||
Adjusted EBITDA |
$ | 745 | $ | 875 | $ | 966 | $ | 1,062 | $ | 1,156 | $ | 1,244 |
Opinion of Ecolab's Financial Advisor
Ecolab has retained BofA Merrill Lynch to act as Ecolab's financial advisor in connection with the merger. BofA Merrill Lynch is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Ecolab selected BofA Merrill Lynch to act as Ecolab's financial advisor in connection with the merger on the basis of BofA Merrill Lynch's experience in transactions similar to the merger, its reputation in the investment community and its familiarity with Ecolab and its business.
On July 19, 2011, at a meeting of Ecolab's board of directors held to evaluate the merger, BofA Merrill Lynch delivered to Ecolab's board of directors an oral opinion, which was confirmed by delivery of a written opinion, dated July 19, 2011, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the merger consideration to be paid in the merger by Ecolab was fair, from a financial point of view, to Ecolab.
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The full text of BofA Merrill Lynch's written opinion to Ecolab's board of directors, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this joint proxy statement/prospectus and is incorporated by reference herein in its entirety. The following summary of BofA Merrill Lynch's opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to Ecolab's board of directors for the benefit and use of Ecolab's board of directors (in its capacity as such) in connection with and for purposes of its evaluation of the merger consideration to be paid in the merger by Ecolab from a financial point of view. BofA Merrill Lynch's opinion does not address any other aspect of the merger and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Ecolab or in which Ecolab might engage or as to the underlying business decision of Ecolab to proceed with or effect the merger. BofA Merrill Lynch's opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any related matter.
In connection with rendering its opinion, BofA Merrill Lynch:
92
In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the managements of Ecolab and Nalco that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Nalco forecasts, BofA Merrill Lynch was advised by Nalco, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Nalco as to the future financial performance of Nalco. With respect to the June 16 model and the July 1 model, BofA Merrill Lynch was advised by Ecolab, and assumed, that they were reasonably prepared on bases reflecting the best then-available estimates and good faith judgments of the management of Ecolab as to the future financial performance of Nalco. With respect to the July 19 model, the Ecolab forecasts and the synergies/cost savings, BofA Merrill Lynch assumed, at the direction of Ecolab, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Ecolab as to the future financial performance of Nalco and Ecolab and the other matters covered thereby and, based on the assessments of the management of Ecolab as to the relative likelihood of achieving the future financial results reflected in the Nalco forecasts, the June 16 model, the July 1 model and the July 19 model, BofA Merrill Lynch relied, at the direction of Ecolab, on the July 19 model for purposes of its opinion. BofA Merrill Lynch relied, at the direction of Ecolab, on the assessments of the management of Ecolab as to Ecolab's ability to achieve the synergies/cost savings and were advised by Ecolab, and assumed, that the synergies/cost savings will be realized in the amounts and at the times projected. BofA Merrill Lynch relied, at the direction of Ecolab, on the assessments of the management of Ecolab as to the products, product candidates and technology of Nalco, including the validity of, risks associated with, and the integration by Ecolab of, such products, product candidates and technology.
BofA Merrill Lynch did not make and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Nalco or Ecolab, nor did it make any physical inspection of the properties or assets of Nalco or Ecolab. BofA Merrill Lynch did not evaluate the solvency or fair value of Nalco or Ecolab under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of Ecolab, that the merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on Nalco, Ecolab or the contemplated benefits of the merger. BofA Merrill Lynch also assumed at the direction of Ecolab that
93
the merger would qualify for federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Code.
BofA Merrill Lynch expressed no view or opinion as to any terms or other aspects of the merger (other than the merger consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the merger. BofA Merrill Lynch's opinion was limited to the fairness, from a financial point of view, to Ecolab of the merger consideration to be paid in the merger and no opinion or view was expressed with respect to any consideration received in connection with the merger by the holders of any class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the merger, or class of such persons, relative to the merger consideration. Furthermore, no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Ecolab or in which Ecolab might engage or as to the underlying business decision of Ecolab to proceed with or effect the merger. BofA Merrill Lynch did not express any opinion as to what the value of Ecolab common stock actually will be when issued or the prices at which Ecolab common stock or Nalco common stock would trade at any time, including following announcement or consummation of the merger. In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the merger or any related matter. Except as described above, Ecolab imposed no other limitations on the investigations made or procedures followed by BofA Merrill Lynch in rendering its opinion.
BofA Merrill Lynch's opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. BofA Merrill Lynch noted in its opinion that the credit, financial and stock markets have been experiencing unusual volatility and BofA Merrill Lynch expressed no opinion or view as to any potential effects of such volatility on Ecolab, Nalco or the Merger. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch's opinion was approved by BofA Merrill Lynch's Americas Fairness Opinion Review Committee.
The following represents a brief summary of the material financial analyses presented by BofA Merrill Lynch to Ecolab's board of directors in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Merrill Lynch. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Merrill Lynch.
For purposes of the analyses summarized below, the merger consideration is assumed to have a value of $38.80, which is equivalent to the per share cash consideration and the implied per share value of the stock consideration as of July 18, 2011.
Nalco Financial Analyses
Selected Publicly Traded Companies Analysis. BofA Merrill Lynch reviewed publicly available financial and stock market information for Nalco and 12 publicly traded companies either with a best-in-class service model or that are in the chemicals sector and that have differentiated specialty product lines, a service-oriented business model or water exposure, in each case which BofA Merrill Lynch, in the exercise of its professional judgment, deemed to be similar to Nalco. BofA Merrill Lynch
94
did not exclude from its analysis any companies that in BofA Merrill Lynch's judgment satisfied such criteria.
BofA Merrill Lynch reviewed, among other things, enterprise values of the selected publicly traded companies calculated as a multiple of estimated earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, for calendar years 2011 and 2012. For purposes of this analysis, enterprise values were calculated as equity values based on closing stock prices on July 18, 2011, plus short and long-term debt, preferred equity and minority interest, less cash and marketable securities. The following table sets forth the 12 selected publicly traded companies and the EBITDA multiples calculated for each:
|
Enterprise Value / EBITDA | ||||||
---|---|---|---|---|---|---|---|
|
CY 2011E | CY 2012E | |||||
Air Products and Chemicals, Inc. |
9.2 | x | 8.4 | x | |||
Albemarle Corporation |
10.1 | x | 8.9 | x | |||
Ashland Inc. |
5.8 | x | N/A | ||||
BASF Corporation |
6.1 | x | 5.6 | x | |||
Cytec Industries Inc. |
6.7 | x | 5.9 | x | |||
Ecolab Inc. |
11.3 | x | 10.3 | x | |||
E.I. du Pont de Nemours and Company |
8.6 | x | 7.5 | x | |||
FMC Corporation |
9.1 | x | 8.1 | x | |||
Kemira Oyj |
8.4 | x | 8.0 | x | |||
Praxair, Inc. |
11.3 | x | 10.2 | x | |||
Stericycle, Inc. |
17.9 | x | 16.1 | x | |||
The Dow Chemical Company |
7.1 | x | 6.5 | x |
BofA Merrill Lynch then applied calendar year 2011 estimated EBITDA multiples of 8.0x to 10.0x, and calendar year 2012 estimated EBITDA multiples of 7.5x to 9.0x, in each case derived from the selected publicly traded companies by BofA Merrill Lynch based upon its professional judgment, to Nalco's calendar year 2011 estimated EBITDA and 2012 estimated EBITDA, respectively. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts' estimates, and estimated financial data of Nalco were based on the July 19 model. This analysis indicated the following approximate implied per share equity value reference ranges for Nalco, as compared to the merger consideration and the closing price of Nalco common stock on July 18, 2011:
Implied per Share Equity Value Reference Ranges for Nalco |
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|
2011E EBITDA | 2012E EBITDA | Nalco July 18 Closing Price | Merger Consideration | ||||||
$23.50 - $34.00 | $27.75 - $37.00 | $ | 28.55 | $ | 38.80 |
No company used in this analysis is identical or directly comparable to Nalco. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which Nalco was compared.
Selected Precedent Transactions Analysis. BofA Merrill Lynch reviewed, to the extent publicly available, financial information relating to 19 selected transactions involving companies in the specialty chemicals and services industries operating primarily in the water sector or other high quality specialty chemicals sector, in each case which BofA Merrill Lynch, in the exercise of its professional judgment, deemed to be similar to Nalco. BofA Merrill Lynch did not exclude from its analysis any transactions that in BofA Merrill Lynch's judgment satisfied such criteria.
95
BofA Merrill Lynch reviewed transaction values, calculated as the enterprise value implied for the target company based on the consideration payable in the selected transaction, as a multiple of the target company's last 12 months' (or LTM) EBITDA. The following table sets forth the 19 selected transactions and the LTM EBITDA multiples calculated for each:
Announcement Date |
Acquiror | Target | LTM EBITDA | |||||
---|---|---|---|---|---|---|---|---|
Feb. 1996 | Betz Laboratories Inc. | Dearborn business | 13.3 | x | ||||
Feb. 1997 |
Baker Hughes Incorporated |
Petrolite Corporation |
12.3 |
x |
||||
July 1998 |
Hercules Inc. |
BetzDearborn Inc. |
11.5 |
x |
||||
June 1999 |
Suez Lyonnaise des Eaux S.A. |
Nalco Chemical Co. |
12.5 |
x |
||||
Feb. 2002 |
General Electric Co. |
BetzDearborn Inc. |
8.3 |
x |
||||
Aug. 2003 |
Apollo Management L.P., Goldman Sachs Capital Partners, Blackstone Group |
Ondeo Nalco |
8.1 |
x |
||||
Jan. 2006 |
BASF Corporation |
Engelhard Corporation |
12.6 |
x |
||||
Mar. 2006 |
Ashland Inc. |
Stockhausen Inc. |
6.5 |
x |
||||
May 2007 |
Danaher Corp. |
ChemTreat, Inc. |
12.0 |
x |
||||
Aug. 2007 |
Ilmariunen Oras |
Kemira Oyj |
10.2 |
x |
||||
July 2008 |
The Dow Chemical Company |
Rohm & Haas Co. |
12.6 |
x |
||||
July 2008 |
Ashland Inc. |
Hercules Inc. |
8.6 |
x |
||||
Sept. 2008 |
BASF Corporation |
Ciba Specialty Chemicals |
7.3 |
x |
||||
Jan. 2011 |
E.I. du Pont de Nemours and Company |
Danisco A/S |
12.2 |
x |
||||
Feb. 2011 |
Clariant International Ltd. |
Süd-Chemie AG |
10.3 |
x |
||||
Mar. 2011 |
Berkshire Hathaway Inc. |
Lubrizol Corporation |
7.7 |
x |
||||
Apr. 2011 |
Pentair, Inc. |
Norit Proces Technologie Holding B.V. |
14.4 |
x |
||||
May 2011 |
Ashland Inc. |
International Specialty Products Inc. |
8.9 |
x |
||||
June 2011 |
Sealed Air Corporation |
Diversey Holdings, Inc. |
9.7 |
x |
96
BofA Merrill Lynch then applied LTM EBITDA multiples of 9.0x to 13.0x derived from the selected transactions and selected by BofA Merrill Lynch based upon its professional judgment to Nalco's LTM EBITDA as of June 30, 2011. Estimated financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Estimated financial data of Nalco were based on the July 19 model. This analysis indicated the following approximate implied per share equity value reference ranges for Nalco, as compared to the merger consideration and the closing price of Nalco common stock on July 18, 2011:
Implied per Share Equity Value Reference Range for Nalco |
|
|
|||||
---|---|---|---|---|---|---|---|
LTM EBITDA as of 6/30/11 | Nalco July 18 Closing Price |
Merger Consideration |
|||||
$24.00 - $42.75 | $ | 28.55 | $ | 38.80 |
No company, business or transaction used in this analysis is identical or directly comparable to Nalco or the merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which Nalco and the merger were compared.
Discounted Cash Flow Analysis. BofA Merrill Lynch performed a discounted cash flow analysis of Nalco to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that Nalco was forecasted to generate during the second half of Nalco's fiscal year 2011 and fiscal years 2012 through 2021 based on the July 19 model. BofA Merrill Lynch calculated terminal values for Nalco by applying selected perpetuity growth rates of 2.0% to 3.0%, which were selected by BofA Merrill Lynch based upon its professional judgment, to Nalco's fiscal year 2021 estimated normalized, unlevered, after-tax free cash flows under the July 19 model, which was $901 million. This amount assumed normalized increases in net working capital and normalized depreciation and amortization based on a percentage of capex in perpetuity. The cash flows and terminal values were then discounted to present value as of June 30, 2011 using discount rates ranging from 8.0% to 10.0%, which were based on an estimate of Nalco's weighted average cost of capital. In deriving this range of discount rates, BofA Merrill Lynch utilized the capital asset pricing model, which takes into account certain financial metrics, including beta, for Nalco, as well as certain financial metrics for the United States financial markets generally.
BofA Merrill Lynch also performed a discounted cash flow analysis of the net synergies/cost savings anticipated by Ecolab to be generated through 2021 to calculate the estimated present value per share of the synergies/cost savings. Based upon its professional judgment, BofA Merrill Lynch assumed a perpetuity growth rate of 0.5% and used a discount rate of 9%. These discounted cash flow analyses indicated a per share value of the synergies/cost savings of approximately $15.75.
This analysis indicated the following approximate implied per share equity value reference ranges for Nalco as compared to the merger consideration and the closing price of Nalco common stock on July 18, 2011:
Implied per Share Equity Value Reference Ranges for Nalco |
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|
Without Synergies | With Synergies | Nalco July 18 Closing Price |
Merger Consideration |
||||||
$36.50 - $68.75 | $52.25 - $84.25 | $ | 28.55 | $ | 38.80 |
Contribution Analysis
BofA Merrill Lynch reviewed the relative financial contributions of Ecolab and Nalco to the future financial performance of the combined company on a pro forma basis. BofA Merrill Lynch reviewed
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the 2010 historical and 2011, 2012 and 2013 estimated EBITDA, EBITDA less capital expenditures, and net income of the combined company on a pro forma basis, based on the July 19 model and the Ecolab forecasts. Based on the implied relative equity value contributions and not taking into account the synergies/cost savings, BofA Merrill Lynch calculated the following implied exchange ratios and implied offer prices per share of Nalco common stock:
|
|
Relative Contribution | |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Implied Exchange Ratio |
Implied Offer Price |
|||||||||||||
Benchmark(1)
|
Year | Ecolab | Nalco | |||||||||||||
EBITDA(2) |
2010A | 71 | % | 29 | % | 0.698 | x | $ | 38.42 | |||||||
|
2011E | 70 | % | 30 | % | 0.719 | x | $ | 39.53 | |||||||
|
2012E | 70 | % | 30 | % | 0.715 | x | $ | 39.35 | |||||||
|
2013E | 70 | % | 30 | % | 0.725 | x | $ | 39.88 | |||||||
EBITDA(2)Capex(3) |
2010A |
70 |
% |
30 |
% |
0.728 |
x |
$ |
40.06 |
|||||||
|
2011E | 68 | % | 32 | % | 0.804 | x | $ | 44.20 | |||||||
|
2012E | 68 | % | 32 | % | 0.807 | x | $ | 44.42 | |||||||
|
2013E | 70 | % | 30 | % | 0.745 | x | $ | 41.00 | |||||||
Net Income |
2010A |
74 |
% |
26 |
% |
0.601 |
x |
$ |
33.08 |
|||||||
|
2011E | 71 | % | 29 | % | 0.708 | x | $ | 38.97 | |||||||
|
2012E | 67 | % | 33 | % | 0.849 | x | $ | 46.72 | |||||||
|
2013E | 66 | % | 34 | % | 0.879 | x | $ | 48.35 | |||||||
Merger Consideration |
0.705 |
x |
$ |
38.80 |
Pro Forma Accretion/Dilution Analysis
BofA Merrill Lynch reviewed the potential pro forma financial effect of the merger on Ecolab's calendar years 2012 through 2016 estimated earnings per share, commonly referred to as EPS. Estimated financial data of Ecolab and Nalco were based on the Ecolab forecasts and the July 19 model. Based on the merger consideration, this analysis indicated that the merger could be accretive to Ecolab's estimated EPS for calendars years 2012 through 2016 using the July 19 model. The actual results achieved by the combined company may vary from projected results and the variations may be material. This analysis indicated the following approximate accretion/dilution range:
Accretion / (Dilution) Range for Nalco (2012 - 2016) | ||||
---|---|---|---|---|
$0.15 - $0.67 | ||||
5.1% - 13.5% |
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Other Factors
In rendering its opinion, BofA Merrill Lynch also reviewed and considered other factors, including:
Premium Based On:
|
|
% Premium to Equity Value | % Premium to Enterprise Value | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Current (07/18/11 Close) |
$ | 28.55 | 36 | % | 22 | % | ||||
30-Day Volume Weighted Average Price |
$ | 27.48 | 41 | % | 24 | % | ||||
90-Day Volume Weighted Average Price |
$ | 27.56 | 41 | % | 24 | % | ||||
52-Week High (12/21/10) |
$ | 32.32 | 20 | % | 13 | % | ||||
52-Week Low (08/25/10) |
$ | 22.32 | 74 | % | 40 | % |
Enterprise Value/Estimated NTM EBITDA
|
Ecolab | Nalco | Differential | Percentage Differential |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current (as of 07/18/11) |
10.6x | 8.5x | 2.1x | 19.8 | % | ||||||||
|
|||||||||||||
Year-to-date (as of 07/18/11) |
10.2x | 8.7x | 1.5x | 15.1 | % | ||||||||
LTM (as of 07/18/11) |
9.9x | 8.5x | 1.4x | 14.3 | % | ||||||||
Calendar Year 2010 |
9.7x | 8.3x | 1.4x | 14.5 | % | ||||||||
Calendar Year 2009 |
9.6x | 8.3x | 1.4x | 14.2 | % |
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|
Ecolab | Nalco | Differential | Percentage Differential |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current (as of 07/18/11) |
20.3x | 15.3x | 5.0x | 24.7 | % | ||||||||
|
|||||||||||||
Year-to-date (as of 07/18/11) |
20.1x | 15.4x | 4.7x | 23.3 | % | ||||||||
LTM (as of 07/18/11) |
20.0x | 15.6x | 4.4x | 22.1 | % | ||||||||
Calendar Year 2010 |
19.6x | 15.7x | 3.9x | 20.0 | % | ||||||||
Calendar Year 2009 |
18.7x | 15.1x | 3.6x | 19.2 | % |
This calculation indicated the following:
|
Nalco Transaction Multiples | Ecolab Trading Multiples | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
July 19 Model Without Synergies/Cost Savings |
July 19 Model With Synergies/Cost Savings(1) |
Wall Street Consensus Estimates |
|||||||
Merger Consideration/2011E EPS |
21.7x | 15.6x | 21.9x | |||||||
Merger Consideration/2012E EPS |
16.0x | 12.3x | 19.1x | |||||||
Enterprise Value/LTM as of 06/30/11 Adjusted EBITDA |
12.1x | 9.9x | 11.9x | |||||||
Enterprise Value/2011E Adjusted EBITDA |
10.9x | 9.0x | 11.3x | |||||||
Enterprise Value/2012E Adjusted EBITDA |
9.3x | 7.9x | 10.3x |
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Miscellaneous
As noted above, the discussion set forth above is a summary of the material financial analyses presented by BofA Merrill Lynch to Ecolab's board of directors in connection with its opinion and is not a comprehensive description of all analyses undertaken by BofA Merrill Lynch in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Merrill Lynch believes that its analyses summarized above must be considered as a whole. BofA Merrill Lynch further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Merrill Lynch's analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.
In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of Ecolab and Nalco. The estimates of the future performance of Ecolab and Nalco in or underlying BofA Merrill Lynch's analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch's analyses. These analyses were prepared solely as part of BofA Merrill Lynch's analysis of the fairness, from a financial point of view, of the merger consideration to be paid in the merger and were provided to Ecolab's board of directors in connection with the delivery of BofA Merrill Lynch's opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch's view of the actual values of Ecolab or Nalco.
The type and amount of consideration payable in the merger was determined through negotiations between Ecolab and Nalco, rather than by any financial advisor, and was approved by Ecolab's board of directors. The decision to enter into the merger agreement was solely that of Ecolab's board of directors. As described above, BofA Merrill Lynch's opinion and analyses were only one of many factors considered by Ecolab's board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of Ecolab's board of directors or management with respect to the merger or the merger consideration.
Ecolab has agreed to pay BofA Merrill Lynch for its services in connection with the merger an aggregate fee of $25,000,000 of which $1,500,000 was payable in connection with, and upon the rendering of, its opinion and the balance of which is contingent upon consummation of the merger. Ecolab also has agreed to reimburse BofA Merrill Lynch for its expenses incurred in connection with BofA Merrill Lynch's engagement and to indemnify BofA Merrill Lynch, any of its affiliates and each of their respective directors, officers, employees and agents and each other person controlling BofA Merrill Lynch or any of its affiliates against specified liabilities, including liabilities under the federal securities laws.
BofA Merrill Lynch and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of
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their businesses, BofA Merrill Lynch and its affiliates may invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of Ecolab, Nalco and certain of their respective affiliates.
BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Ecolab. Excluding payments received for services relating to the merger and related financings, in the past two years BofA Merrill Lynch and its affiliates have received, in the aggregate, approximately $340,000 in compensation, and in the future may receive compensation, for the rendering of these services, including having acted or acting as book-running manager for various debt offerings and having provided or providing certain derivatives and foreign exchange trading services to Ecolab. BofA Merrill Lynch acted as lead left arranger for Ecolab's two new senior secured credit facilities and has received, in the aggregate, approximately $1.0 million in compensation for these services and has been engaged to act as joint lead placement agent for the expected issuance of $500 million of private placement notes that will be used to finance the merger and will receive, in the aggregate, compensation for these services equal to approximately $1.0 million based on the expected size of the issuance. BofA Merrill Lynch and certain of its affiliates may also participate in the financing for the merger by potentially acting as underwriter/placement agent for new public notes and/or related hedging activity, for which services BofA Merrill Lynch and its affiliates would receive compensation.
In addition, BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Nalco and in the past two years have received, in the aggregate, approximately $14.9 million in compensation, and in the future may receive compensation, for the rendering of these services, including having (i) acted or acting as book-running manager and arranger for various debt offerings and lender under certain letters of credit and credit facilities and (ii) provided or providing certain cash, treasury management, derivatives and foreign exchange trading products and services to Nalco. In connection with providing its opinion, BofA Merrill Lynch advised Ecolab's board of directors of the foregoing services provided to Nalco.
Opinion of Nalco's Financial Advisor
Goldman Sachs rendered its opinion to the Nalco board of directors that, as of July 19, 2011 and based upon and subject to the factors and assumptions set forth therein, the aggregate merger consideration to be paid to the holders of Nalco common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The aggregate merger consideration is subject to certain procedures and limitations contained in the merger agreement, as to which procedures and limitations Goldman Sachs expressed no opinion.
The full text of the written opinion of Goldman Sachs, dated July 19, 2011, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. This summary of the Goldman Sachs opinion provided in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion. Nalco stockholders are urged to read the opinion carefully and in its entirety. Goldman Sachs provided its opinion for the information and assistance of the Nalco board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Nalco common stock should vote or make any election with respect to the merger or any other matter. Goldman Sachs' opinion was approved by a fairness committee of Goldman, Sachs & Co.
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In connection with rendering the opinion described above, Goldman Sachs reviewed, among other things:
Goldman Sachs also held discussions with members of the senior managements of Nalco and Ecolab regarding their assessment of the strategic rationale for, and the potential benefits of, the merger and the past and current business operations, financial condition and future prospects of their respective companies; reviewed the reported price and trading activity for the shares of Nalco common stock and the shares of Ecolab common stock; compared certain financial and stock market information for Nalco and Ecolab with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the chemical industry and in other industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.
For purposes of rendering this opinion, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, Goldman Sachs; and Goldman Sachs does not assume any responsibility for any such information. In that regard, Goldman Sachs assumed with the consent of the Nalco board of directors that the Forecasts, including the Synergies, had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Nalco. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Nalco or Ecolab or any of their respective subsidiaries, nor was Goldman Sachs furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any adverse effect on Nalco or Ecolab on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs also assumed that the merger would be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis. The type and amount of consideration payable in the merger was determined through negotiations between Nalco and Ecolab, rather than by Goldman Sachs.
Goldman Sachs' opinion does not address the underlying business decision of Nalco to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to Nalco; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of, or other business combination with, Nalco or any other alternative transaction. Goldman
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Sachs' opinion addresses only the fairness from a financial point of view, as of the date of the opinion, to the holders of Nalco common stock of the aggregate merger consideration to be paid to such holders pursuant to the merger agreement. Goldman Sachs' opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Nalco; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Nalco, or class of such persons, in connection with the merger, whether relative to the aggregate merger consideration to be paid to the holders of Nalco common stock pursuant to the merger agreement or otherwise. In addition, Goldman Sachs does not express any opinion as to the prices at which shares of Ecolab common stock will trade at any time or as to the impact of the merger on the solvency or viability of Nalco or Ecolab or the ability of Nalco or Ecolab to pay their respective obligations when they come due. Goldman Sachs' opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion.
The following is a summary of the material financial analyses delivered by Goldman Sachs to the Nalco board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs' financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before July 19, 2011, the last trading day prior to the announcement of the merger agreement, and is not necessarily indicative of current market conditions. For purposes of performing certain of its financial analyses, Goldman Sachs assumed an aggregate merger consideration mix of 30% cash/70% stock, representing an implied price of $38.80 per share of Nalco common stock. The $38.80 implied price per share is the sum of (a) 30% of the cash merger consideration consisting of $38.80 per share, plus (b) 70% of the implied market value of the stock merger consideration (calculated as $38.80 as a result of multiplying the July 19, 2011 closing price per share of Ecolab common stock of $55.39 by the exchange ratio of 0.7005 under the merger agreement). For purposes of the financial analyses described below, this $38.80 aggregate merger consideration is referred to as the implied merger consideration, or IMC.
Premium to Nalco Share Price. Goldman Sachs calculated the premium implied by the exchange ratio based on the implied merger consideration and (1) the closing market price of Nalco common stock on July 19, 2011; (2) the volume-weighted average price, or VWAP, per share of Nalco common stock during the 10, 20 and 30 day periods ended July 19, 2011; and (3) the high closing price per share of Nalco common stock for the 52-week period ended on July 19, 2011. This analysis showed the following implied premiums:
Date or Period
|
Price | Implied Premium | |||||
---|---|---|---|---|---|---|---|
July 19, 2011 |
$ | 28.87 | 34.4 | % | |||
10 day VWAP |
$ | 28.87 | 34.4 | % | |||
20 day VWAP |
$ | 28.17 | 37.8 | % | |||
30 day VWAP |
$ | 27.56 | 40.8 | % | |||
52-Week High |
$ | 32.32 | 20.0 | % |
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Selected Precedent Mixed Consideration Transactions. Goldman Sachs reviewed all precedent mixed consideration transactions contained on the Thompson Reuters database that were announced since January 1, 2001 and involved the sale of U.S. targets with equity values greater than $1 billion (excluding targets in the financial services, utilities and REIT industries and withdrawn transactions), in which greater than 50% of the aggregate consideration was in the form of acquirer's stock and the target's shareholders owned between 10% and 30% of the stock of the combined company on a pro forma basis. For the eighteen transactions identified and the proposed merger, Goldman Sachs calculated the percentage premia of the consideration paid to the target's closing price on the trading day that was (1) immediately preceding the date of announcement, which we refer to as the 1-Day Prior Premium, (2) one week preceding the date of announcement, which we refer to as the 1-Week Prior Premium, and (3) four weeks preceding the date of announcement, which we refer to as the 4-Week Prior Premium. The following table presents the selected mixed consideration transactions used by Goldman Sachs for its analysis and the results of this analysis:
|
|
|
Premium to: | |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Consideration (% Stock) |
||||||||||||||
Announcement Date
|
Target | Acquirer | 1-Day | 1-Week | 4-Weeks | ||||||||||||
October 2001 |
RightCHOICE Managed Care, Inc. |
WellPoint Health Networks Inc. |
46.3 | % | 46.2 | % | 56.5 | % | 70.0 | % | |||||||
November 2001 |
Dal-Tile International Inc. |
Mohawk Industries, Inc. |
51.4 | % | 46.6 | % | 54.6 | % | 57.0 | % | |||||||
December 2001 |
Immunex Corporation |
Amgen Inc. |
19.2 | % | 14.2 | % | 11.0 | % | 84.6 | % | |||||||
March 2002 |
Elantec Semiconductor, Inc. |
Intersil Corporation |
34.9 | % | 51.2 | % | 43.7 | % | 85.0 | % | |||||||
July 2004 |
Ocular Sciences, Inc. |
The Cooper Companies, Inc. |
18.5 | % | 14.9 | % | 17.7 | % | 50.1 | % | |||||||
January 2005 |
Western Wireless Corporation |
ALLTEL Corporation |
7.5 | % | 27.6 | % | 39.6 | % | 76.4 | % | |||||||
April 2005 |
Premcor Inc. |
Valero Energy Corporation |
25.9 | % | 33.4 | % | 26.5 | % | 50.0 | % | |||||||
June 2005 |
Catellus Development Corporation |
ProLogis |
16.3 | % | 17.5 | % | 20.8 | % | 65.0 | % | |||||||
July 2005 |
Maytag Corporation |
Whirlpool Corporation |
83.1 | % | 100.4 | % | 49.1 | % | 50.0 | % | |||||||
July 2005 |
IVAX Corporation |
Teva Pharmaceutical Industries Limited |
14.5 | % | 13.1 | % | 23.8 | % | 50.0 | % | |||||||
November 2005 |
Inamed Corporation |
Allergan, Inc. |
26.9 | % | 19.9 | % | 19.3 | % | 55.0 | % | |||||||
September 2006 |
Veritas DGC Inc. |
Compagnie Generale de Geophysique SA |
20.6 | % | 33.6 | % | 31.3 | % | 51.0 | % | |||||||
January 2007 |
The Houston Exploration Company |
Forest Oil Corporation |
7.8 | % | 1.3 | % | (5.1 | )% | 50.0 | % | |||||||
February 2007 |
TALX Corporation |
Equifax, Inc. |
10.8 | % | 12.2 | % | 30.3 | % | 75.0 | % | |||||||
June 2007 |
Solectron Corporation |
Flextronics International Ltd. |
19.8 | % | 20.5 | % | 17.0 | % | 70.0 | % | |||||||
December 2007 |
Grant PrideCo, Inc. |
National Oilwell Varco, Inc. |
22.2 | % | 15.9 | % | 28.2 | % | 60.0 | % | |||||||
March 2009 |
Schering-Plough Corporation |
Merck & Co., Inc. |
33.9 | % | 43.4 | % | 17.5 | % | 55.5 | % | |||||||
August 2009 |
BJ Services Company |
Baker Hughes Incorporated |
16.3 | % | 16.0 | % | 20.9 | % | 85.0 | % | |||||||
Mean |
26.4 |
% |
29.3 |
% |
27.9 |
% |
63.3 |
% |
|||||||||
Median |
20.2 | % | 20.2 | % | 25.1 | % | 58.5 | % | |||||||||
Merger |
34.4 | % | 35.2 | % | 40.9 | % | 70.0 | % |
Analysis of Multiples at Implied Merger Consideration. Goldman Sachs calculated and compared various financial multiples and ratios for Nalco based on the Nalco Forecasts and estimates from the Institutional Brokers Estimate System, which we refer to as IBES:
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The following table presents the results of this analysis:
|
IBES | Nalco Forecasts | |||||
---|---|---|---|---|---|---|---|
EV/EBITDA |
|||||||
LTM(1) |
12.2x | 11.9x | |||||
2011E |
11.2x | 10.9x | |||||
2012E |
10.1x | 9.0x | |||||
2013E |
9.2x | 8.3x | |||||
IMC/EPS |
|||||||
2011E |
23.8x | 21.5x | |||||
2012E |
18.9x | 15.3x | |||||
2013E |
16.2x | 13.5x |
Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to certain transactions in the chemical industry. For each of the selected transactions, Goldman Sachs calculated and compared, based on publicly available information, the EV of the target company, based on the transaction value, as a multiple of the target company's last twelve months EBITDA, which we refer to as LTM EBITDA. While none of the selected transactions are directly comparable to the proposed merger, Goldman Sachs selected the transactions included based on its professional judgment that the companies that participated in the selected transactions are companies with results, market size, or product or service profile that, for the purposes of analysis, Goldman Sachs considered similar to certain of Nalco's results, market size, or product or service profile. Goldman Sachs did not exclude from its analysis any transactions that in Goldman Sachs' judgment satisfied such criteria. The following table presents the results of this analysis:
Announcement Date
|
Target | Acquirer | EV Multiples of LTM EBITDA |
|||||
---|---|---|---|---|---|---|---|---|
July 2008 |
Rohm and Haas Company |
The Dow Chemical Company |
12.6x | |||||
January 2006 |
Engelhard Corporation |
BASF AG |
12.5x | |||||
April 2011 |
Danisco A/S |
E.I. du Pont de Nemours and Company |
12.3x | |||||
July 1998 |
BetzDearborn Inc. |
Hercules Incorporated |
11.8x | |||||
June 1999 |
Nalco Chemical Company |
Suez Lyonnaise des Eaux |
11.5x | |||||
February 2010 |
Airgas, Inc. |
Air Products and Chemicals, Inc. |
10.9x | |||||
March 2006 |
The BOC Group plc |
Linde AG |
10.9x | |||||
June 2011 |
Diversey Holdings, Inc. |
Sealed Air Corporation |
9.7x | |||||
July 2008 |
Hercules Incorporated |
Ashland Inc. |
8.6x | |||||
February 2002 |
GE Betz, Inc. (formerly known as BetzDearborn, Inc.) |
General Electric Company |
8.3x | |||||
September 2003 |
Ondeo Nalco Company |
Apollo Management, L.P., Goldman Sachs Capital Partners and the Blackstone Group |
8.1x | |||||
September 2008 |
Ciba Holding AG |
BASF SE |
7.8x | |||||
High |
12.6x |
|||||||
Low |
7.8x | |||||||
Median |
10.9x | |||||||
Mean |
10.4x |
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Illustrative Present Value of Future Stock Price Analyses. Goldman Sachs performed illustrative analyses of the present value of the potential future price per share of Nalco common stock using EPS estimates based on the Nalco Forecasts. Goldman Sachs first multiplied the respective EPS estimates for calendar years 2012 through 2015 by Price/EPS multiples ranging from 14.5x to 16.5x. The range of Price/EPS multiples was derived by Goldman Sachs utilizing its experience and professional judgment, taking into account current and historical trading data and the current and historical forward twelve months Price/EPS multiples for Nalco. Goldman Sachs then calculated the present values of the implied per share future values, including the present value of assumed future annual dividend payments of $0.14 per share, for Nalco common stock by discounting the implied per share future values to June 30, 2011, using a discount rate of 12.0%, reflecting an estimate of Nalco's cost of equity. In deriving a discount rate of 12.0% for the purposes of this analysis, Goldman Sachs utilized the capital asset pricing model which takes into account certain financial metrics, including beta, for Nalco, as well as certain financial metrics for the United States financial markets generally. The following table presents the results of this analysis:
Year
|
Implied Present Value | |
---|---|---|
2011E |
$35.00 - $40.00 | |
2012E |
35.00 - 40.00 | |
2013E |
36.00 - 41.00 | |
2014E |
37.00 - 41.00 |
Goldman Sachs also performed illustrative analyses of the present value of the potential future price per share of Nalco common stock using EBITDA estimates based on the Nalco Forecasts. Goldman Sachs first calculated illustrative enterprise values by multiplying the respective EBITDA estimates for the calendar years 2012 through 2015 by EV/EBITDA multiples ranging from 8.0x to 9.0x. The range of EV/EBITDA multiples was derived by Goldman Sachs utilizing its experience and professional judgment, taking into account current and historical trading data and the current and historical forward twelve months EV/EBITDA multiples for Nalco. The forecasted net debt (total debt less cash) and minority interest as of the end of the years specified in the table below then was subtracted from the illustrative enterprise values in order to calculate the implied future equity values. The implied future equity values in turn were divided by the forecasted year-end diluted shares outstanding as of the end of the years specified in the table below. Goldman Sachs then calculated the present values of the implied per share future values, including the present value of assumed future annual dividend payments of $0.14 per share, for Nalco common stock by discounting the implied per share future values to June 30, 2011, using a discount rate of 12.0%, reflecting an estimate of Nalco's cost of equity. In deriving a discount rate of 12.0% for the purposes of this analysis, Goldman Sachs utilized the capital asset pricing model which takes into account certain financial metrics, including beta, for Nalco, as well as certain financial metrics for the United States financial markets generally. The following table presents the results of this analysis:
Year
|
Implied Present Value | |
---|---|---|
2011E |
$32.00 - $38.00 | |
2012E |
34.00 - 40.00 | |
2013E |
35.00 - 41.00 | |
2014E |
37.00 - 43.00 |
Goldman Sachs also performed a similar analysis to analyze the effect of changes relative to the Nalco Forecasts. The analysis used illustrative constant EBITDA margins of 17.0% (based on Nalco's historical average from 2007 through 2010), assumed future annual dividend payments of $0.14 per share, an assumed discount rate of 12.0%, an assumed Price/EPS multiple range of 14.5x to 16.5x, and an assumed EV/EBITDA multiple range of 8.0x to 9.0x. In deriving a discount rate of 12.0% for the purposes of this analysis, Goldman Sachs utilized the capital asset pricing model which takes into
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account certain financial metrics, including beta, for Nalco, as well as certain financial metrics for the United States financial markets generally. The range of Price/EPS multiples was derived by Goldman Sachs utilizing its experience and professional judgment, taking into account current and historical trading data and the current and historical forward Price/EPS multiples for Nalco. The range of EV/EBITDA multiples was derived by Goldman Sachs utilizing its experience and professional judgment, taking into account current and historical trading data and the current and historical forward EV/EBITDA multiples for Nalco. The following table presents the results of this analysis:
Year
|
Implied Present Value | |
---|---|---|
EV/EBITDA Multiple |
||
2011E |
$31.00 - 37.00 | |
2012E |
31.00 - 37.00 | |
2013E |