THE WOODLANDS, Texas and ST. PAUL, Minn., Dec. 19, 2019 (GLOBE NEWSWIRE) -- Apergy Corporation (NYSE: APY) and Ecolab Inc. (NYSE: ECL) today announced that their Boards of Directors have approved a definitive agreement pursuant to which Ecolab will separate the Upstream Energy business of Nalco Champion (which is being renamed ChampionX) and simultaneously combine it with Apergy in a tax-free transaction, creating a scaled, global leader in production-optimization solutions (the “Combined Company”).

The merger combines Apergy with Ecolab’s ChampionX business, which is expected to generate approximately $2.4 billion in revenue in 2019, and consists of the drilling, completion, and energy production, chemistry sciences, and solutions operations currently included within Ecolab’s Energy segment. The downstream chemistry solutions business from Ecolab’s former Energy segment will be retained by Ecolab. Following the completion of the transaction, the Combined Company will have approximately $3.5 billion in pro forma 2019 sales, with a strong balance sheet and robust free cash flow generation. The Combined Company will provide greater scale, a larger geographic footprint, enhanced customer touch points, and low leverage supported by strong cash flow generation through the oil and gas cycle.

“This transaction is a great development benefiting both Apergy and Ecolab shareholders. It brings together two well respected companies to create a global leader that provides customers with a full suite of production-optimization solutions, solidifying our position as a focused leader in the production segment, while providing shareholders and employees better long term growth opportunities,” said Sivasankaran “Soma” Somasundaram, President and Chief Executive Officer of Apergy. “The ChampionX business is a ‘top box’ performer within our value creation framework, and will accelerate our strategic goals of broadening our product portfolio and geographic footprint, as well as expanding our customer relationships. The transaction is consistent with our strategic priorities of reducing cyclicality and decreasing leverage. Additionally, the Combined Company will be on the cutting edge of technology and development in the oilfield with a patent portfolio of over 2,400 global patents. Culturally, our organizations are very similar with a focus on customer centricity, advancement of technology, and continuous improvement. We expect that our cultural alignment will result in a seamless integration. ChampionX has a talented and experienced management team, and I am looking forward to working with them. Post-transaction, we will have over 8,000 talented employees working collaboratively to solve customer problems around the world.”

Douglas M. Baker, Jr., Ecolab’s Chairman and CEO, commented, “This transaction is a terrific development for both Apergy and ChampionX. It brings together two established industry leaders, creating a strong and focused entity with an experienced management team, considerable scale and a broader range of solutions that better serve customer needs. These commercial merits, together with the significant synergies expected to be realized through the combination, should drive even more attractive shareholder value for Ecolab shareholders than our original spin plan. This combination should also create more opportunities for our ChampionX associates, whom we thank for their many contributions and wish them every success in the future. Given that we have already been working towards a spinoff of ChampionX, we expect this to be a smooth transition for the business.”

Deric Bryant, current Executive Vice President & President of Ecolab’s Upstream Energy business, commented, “I am excited to be joining with Apergy to drive ChampionX’s future growth. Together our two businesses will offer a compelling value proposition to our production-focused customer base. I believe that our future is brighter together, and I look forward to leading ChampionX as part of the Combined Company.”

Key Strategic & Financial Benefits

The transaction brings together two highly complementary, leading oilfield equipment and specialty chemical companies with strong operating platforms and relatively stable end markets. The Combined Company is expected to benefit from:

Strategic Benefits

• Meaningful opportunity to drive incremental revenue growth by offering a broader equipment and service offering to an expanded and diversified global customer base, including national and international oil companies.
• High-quality, differentiated portfolio of products and services that combines well-known brands, including ChampionX, Norris, Harbison-Fischer, and US Synthetic.
• Greater scale and reach through a strong global footprint and operating expertise across North America, Europe, Asia Pacific, Middle East, and Latin America.
• Expanded platform with innovative technology to drive the next generation of digital technology adoption and production optimization solutions in the oilfield.
• An experienced management team and the combined talents and skills of Apergy and ChampionX team members with a continued strong focus on culture and employee engagement.

Financial Benefits

• 2019E pro forma revenue of approximately $3.5 billion and adjusted EBITDA of approximately $615 million (excluding synergies).
• Expected annualized run-rate cost synergies of approximately $75 million within 24 months of closing through reduced corporate expenses, including avoidance of public company costs for ChampionX, efficiencies in supply chain procurement, leveraging of facilities, and SG&A reduction opportunities.
• Significant sales synergies over time given the ability to utilize ChampionX’s geographic footprint and customer base to expand sales of Apergy’s production and automation technology products as well as the opportunity to offer Apergy’s digital solutions to ChampionX customers.
• Strong recurring revenue base and production-optimization portfolio supports more stable, through-cycle EBITDA and cash flow generation.
• Significant pro forma cash generation with low capital intensity across both businesses results in attractive free cash flow conversion and supports a balanced and effective capital allocation strategy going forward.
• Pro forma net leverage ratio of approximately 1.7x², excluding cost synergies, and 1.5x including cost synergies. Leverage is expected to be approximately 1.0x net debt/EBITDA after the first full year following the combination.

Management, Board of Directors and Headquarters

The Combined Company will benefit from the strengths and capabilities of Apergy and ChampionX. Mr. Somasundaram, current Apergy President and Chief Executive Officer, will serve as President and Chief Executive Officer of the Combined Company. Jay Nutt, current Chief Financial Officer of Apergy, will serve as Chief Financial Officer of the Combined Company, and Deric Bryant, current Executive Vice President & President of Ecolab’s Upstream Energy business, will serve as Chief Operating Officer of the Combined Company. Deric will have responsibility for ChampionX, as well as responsibility for the integration of the two companies and synergy capture. Additional senior leadership positions for the new company will be named at a later date. The size of the Apergy Board will be increased and two new directors designated by Ecolab will be appointed to the Board. Daniel Rabun, current Chairman of Apergy, will serve as Chairman of the Combined Company. The Combined Company will be headquartered in The Woodlands, Texas, and will have operations in over 55 countries.

Transaction Details

The transaction will be effected through a “Reverse Morris Trust” transaction pursuant to which ChampionX is expected to be spun-off to Ecolab’s shareholders and simultaneously merged with and surviving as a wholly-owned subsidiary of Apergy. The transaction is expected to be tax-free to Ecolab and its shareholders and Apergy’s shareholders for U.S. federal income tax purposes. At the completion of the transaction, Apergy will issue approximately 127 million shares on a fully diluted basis to existing Ecolab shareholders and assume estimated net debt of approximately $492 million.

Based on Apergy’s closing price of $30.67 on December 18, 2019, the transaction values Ecolab’s ChampionX business at $4.4 billion, which represents approximately 12.5x 2019 estimated EBITDA, and approximately 10.3x 2019 estimated EBITDA including full-run rate cost synergies; as well as less than 9.5x 2020 estimated EBITDA including full run-rate cost synergies. Existing Ecolab shareholders will own approximately 62% of the Combined Company on a fully diluted basis, with existing shareholders of Apergy owning approximately 38% of the Combined Company on a fully diluted basis. Both sets of shareholders will jointly participate in the expected synergies and other benefits of the combination.

ChampionX and Bank of America executed a term loan facility commitment letter pursuant to which Bank of America has committed to provide a term loan financing, subject to customary conditions, to ChampionX for approximately $537 million to fund a net cash payment of approximately $492 million to Ecolab. At closing, ChampionX is expected to have approximately $45 million of cash. Apergy has also obtained fully underwritten commitments to amend its existing debt facilities and guarantee the ChampionX debt to permit the transaction.

The transaction is subject to customary closing conditions, including (i) effectiveness of Apergy Form S-4 and Ecolab Form 10; (ii) Apergy shareholder approval; (iii) consummation of the ChampionX separation from Ecolab; (iv) for Ecolab, receipt of tax opinions; and (v) regulatory approvals. The transaction is expected to be completed by the end of the second quarter of 2020.

Advisors

Centerview Partners LLC and Lazard are serving as financial advisors to Apergy and Weil, Gotshal & Manges LLP is serving as legal counsel. BofA Securities is serving as exclusive financial advisor to Ecolab, and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel.

About Apergy

Apergy is a leading provider of highly engineered equipment and technologies that help companies drill for and produce oil and gas safely and efficiently around the world. Apergy's products provide efficient functioning throughout the lifecycle of a well - from drilling to completion to production. Apergy’s Production & Automation Technologies offerings consist of artificial lift equipment and solutions, including rod pumping systems, electric submersible pump systems, progressive cavity pumps and drive systems and plunger lifts, as well as a full automation and digital offering consisting of equipment and software for Industrial Internet of Things (“IIoT”) solutions for downhole monitoring, wellsite productivity enhancement, and asset integrity management. Apergy’s Drilling Technologies offering provides leading polycrystalline diamond cutters and bearings that result in cost effective and efficient drilling. To learn more about Apergy, visit our website at http://www.apergy.com.

About Ecolab

A trusted partner at nearly three million customer locations, Ecolab (ECL) is the global leader in water, hygiene and energy technologies and services that protect people and vital resources. With annual sales of $15 billion and 49,000 associates, Ecolab delivers comprehensive solutions, data-driven insights and on-site service to promote safe food, maintain clean environments, optimize water and energy use, and improve operational efficiencies for customers in the food, healthcare, energy, hospitality and industrial markets in more than 170 countries around the world.