Ecolab on Monday announced plans to spin off its upstream energy business as a stand-alone publicly-traded company. The business consists of the company’s oil field chemicals production and the WellChem drilling and well completion chemistry business. Ecolab plans to retain the downstream business, which serves refineries and petrochemical plants. The separation transaction is expected to be a tax-free spin-off to US shareholders for US federal income tax purposes.
On completion of the spin-off, the upstream energy business will be a market-leading pure-play global provider of oil and gas production, drilling, and completion product and services, serving the flow maximization and asset protection needs of customers for onshore and offshore activity. For the full year 2018, upstream energy unaudited sales are expected to be approximately $2.4 billion, with expected unaudited operating income of approximately $170 million and EBITDA of approximately $340 million. These exclude as-yet undetermined spin-off related costs, as well as estimated public company expenses of approximately $35 million. The public company costs are expected to be offset by increased cost savings initiatives. Oil field production accounts for approximately 80% of upstream energy’s sales, while drilling and well completion comprise roughly 20% of the total.
The new stand-alone company is expected to raise new debt with proceeds to be paid to Ecolab in the form of a dividend, which could be used by Ecolab for share repurchase and/or debt reduction. The leadership and company name will be finalized as the separation process progresses, Ecolab says.
“The proposed spin-off transaction will create two best-in-class stand-alone companies with distinct business models and increased market focus,” says Douglas Baker, Jr., Ecolab’s chairman and CEO…“[The upstream energy business] has become increasingly different from our other Ecolab businesses. As unconventional onshore has grown, our two upstream businesses have become more aligned and appropriately evolved into more specialty chemical type businesses which require increasingly different operating disciplines and expertise,” Baker says, adding that the spin-off creates a new company singularly focused on the upstream oil and gas markets.
Post spin-off, Ecolab will continue to focus on its core platforms, which serve the hygiene, food safety and industrial water markets, and will be well-positioned to drive further strong sales and earnings growth as well as strong free cash flow and accretive returns on capital, the company says. It expects to maintain its current dividend and continue to grow it in the future.
Ecolab expects the transaction to be completed by mid-2020, subject to certain conditions, including confirmation that the spin-off of upstream energy is expected to be tax-free to US shareholders, the effectiveness of appropriate filings with the US Securities and Exchange Commission and final approval by Ecolab’s board of directors.
By Natasha Alperowicz
Source: Chemical Week
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