Sector News

Apergy to acquire Ecolab’s upstream energy unit in a $3.9 billion deal

December 23, 2019
Chemical Value Chain

Oilfield equipment provider Apergy Corp will acquire Ecolab Inc’s upstream energy business in a tax-free deal valued at about $3.9 billion, the companies said on Thursday.

The combination will expand Apergy’s global business in drilling equipment and completion services for oil and gas producers, a sector that has been hit as U.S. shale companies have been drilling fewer new wells.

Smaller oilfield services companies have been cutting staff and reducing activity in U.S. shale while seeking to expand outside of North America. Well completions in Texas, home of the largest shale field, are down about 16% from a year ago.

The deal is worth $3.89 billion based on Apergy’s closing price on Wednesday. Apergy also will assume $492 million in debt from the acquisition, which gives the deal an enterprise value of about $4.4 billion .

Analysts at investment bank Tudor, Pickering, Holt & Co said the price tag “appears lofty at first blush but we’d argue this isn’t out of the expectations fairway for a business like this”.

The deal will bring stable oilfield chemicals revenue, helping balance the volatility of equipment sale, the investment bank said.

Apergy shares were up 6% at $32.52 in early trading. Ecolab’s shares gained 2% to $189.93.

Ecolab and Apergy shareholders will own about 62% and about 38% of the combined entity respectively.

Under the deal, structured as a Reverse Morris Trust transaction to save on tax, Ecolab will complete the spin-off of its upstream energy business, ChampionX, to its shareholders and then immediately merge the unit into a subsidiary of Apergy.

Apergy Chief Executive Officer Sivasankaran Somasundaram will head the combined company, which will be headquartered in The Woodlands, Texas, and will have operations in over 55 countries.

The combined company is expected to generate pro-forma revenue of about $3.5 billion and adjusted core earnings of about $615 million before synergies in 2019, the companies said.

Centerview Partners LLC and Lazard served as financial advisers and Weil, Gotshal & Manges LLP was the legal counsel to Apergy, while BofA Securities served as exclusive financial adviser to Ecolab, with Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel.

By Shanti S Nair and Gary McWilliams

Source: Reuters

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