U.S. Filter to Buy Culligan in Stock Deal
U.S. Filter Corp., continuing its aggressive strategy to acquire rivals in the water-treatment industry, agreed Monday to buy Culligan Water Technologies Inc. for about $1.5 billion in stock.
The purchase would be the latest and largest in a slew of acquisitions by U.S. Filter, a Palm Desert-based provider of water-treatment devices and services that has bought 100 companies in the last seven years, including about 60 in just the last 12 months.
If completed, the deal with Culligan would give U.S. Filter its first major presence in both the bottled water and the residential water-treatment businesses. It would also swell U.S. Filter’s annual revenue to $4.5 billion and create a combined company with 20,000 employees worldwide and 2,000 offices.
“This makes us by far the largest player in the water-treatment business in the world,” said Richard J. Heckmann, chief executive of U.S. Filter, who led an investor group that seized control of the then-ailing firm in 1990. “We make the equipment that treats the water, and so the whole residential bottled water area is a natural expansion of what we do.”
Because competition in the water-treatment industry was so fragmented among hundreds of tiny rivals, Heckmann has sought to create one large company that could consolidate and dominate the industry.
Under the terms of the deal, the familiar Culligan brand name will continue, including its well-known company symbol, the Culligan Man.
“This name internationally is valuable--when people think of water, what do they think of? Culligan,” said Alfred E. Osborne, a member of the board of directors of U.S. Filter. “Culligan Man still lives. And he’s going to do even better.”
Founded in 1936, the Northbrook, Ill.-based Culligan is one of the oldest and largest makers of water-purification and treatment products for homes and businesses. Its water products are sold in more than 90 countries and its residential water-treatment systems are sold in more than 3 million U.S. households.
As part of the deal, Culligan shareholders will get 1.714 U.S. Filter shares for each share of Culligan, valuing the transaction at about $60 a share, or about 20 times Culligan’s operating income, said analysts.
“My biggest concern is that U.S. Filter is paying some very steep prices for its acquisitions--including this one,” said Robert Friedman, an analyst with Standard & Poor’s Corp. who has an “avoid” rating on U.S. Filter. “And whether they can absorb all these acquisitions is still a big question.”
Other analysts, who have more positive outlooks on U.S. Filter, said that while the purchase price was high, the deal made sense.
“It would be very expensive for U.S. Filter to duplicate what Culligan does,” said Lawrence Hickey, analyst with First Analysis Corp., a Chicago brokerage. “They will have to work hard to get some synergies here. But the longer-term strategic benefit is very strong.”
While still subject to shareholder approval, the deal is expected to close in late May.
Culligan shares rose $1.13 to $38.88 a share, while U.S. Filter fell 13 cents to $34.56. Both trade on the New York Stock Exchange. U.S. Filter shares have fallen 22% from their 52-week high of $44.44. Culligan is off 26% from its high of $52.25.
