Cleaning and pest-control services company Ecolab Inc. is buying the water treatment company Nalco Holding Co. for about $5.4 billion in part to better position itself in the water management business.
Nalco, based in Naperville, Ill., provides services to industrial, energy and institutional market customers.
Ecolab Chairman, President and CEO Douglas M. Baker Jr. said in announcing the deal on Wednesday that part of Ecolab's success has come from its ability to expand the markets it serves.
"Through our participation in the water sector and our strategic planning work, we identified water management as a key future growth segment for us given its growth characteristics and importance to our customers," he said in a statement.
Under terms of the deal, Nalco shareholders will receive either 0.7005 shares of Ecolab stock or $38.80 per share in cash. The cash offer is a 34 percent premium to Nalco's closing stock price of $28.87 on Tuesday.
Shares of Nalco jumped $7, or 24.3 percent, to close at $35.87 Wednesday. Ecolab shares fell $4.08, or 7.4 percent, to $51.31.
In addition to the price being paid for the shares, Ecolab will assume about $2.7 billion of Nalco debt, pushing the value of the overall transaction to about $8.1 billion.
Ecolab, which is based in St. Paul, Minn., said that the buyout should save it about $150 million and add to its earnings per share starting in 2012. Nalco, which will join an Ecolab subsidiary, had 2010 sales of $4 billion.
The transaction, which has received unanimous approval from both companies' boards, is expected to close in the fourth quarter. The deal still requires approval from Ecolab and Nalco shareholders.
Aside from the acquisition, Ecolab also announced that it is raising its full-year adjusted earnings guidance. The company now expects adjusted earnings in a range of $2.52 to $2.56 per share. Its prior forecast called for earnings between $2.49 and $2.53 per share.
Ecolab anticipates second-quarter earnings of 64 cents per share.
Analysts surveyed by FactSet predict full-year earnings of $2.52 per share and second-quarter earnings of 63 cents per share.
Ecolab will report its second-quarter financial results on July 27.
Baker said 2012 adjusted earnings for the combined companies are expected to be about $3 per share.