French Utility Reduces Value of U.S. Filter Unit
Vivendi Environnement, the world’s largest water company, posted a loss of $1.96 billion last year as declining orders from U.S. industry prompted it to write down the value of Palm Desert-based U.S. Filter Corp.
The French company, majority-owned by Vivendi Universal, reduced the value of its U.S. Filter water unit by $2.3 billion, Chief Executive Henri Proglio said. It paid $7.9 billion in cash and assumed debt for the world’s largest water-treatment company in 1999.
“They overpaid for an asset which is now worth less,” said Andrew Bell, who helps manage $4.27billion in equities as a strategist at Carr Sheppards Crosthwaite in London. “The size of the write-down is probably an unwelcome shock.”
Vivendi Environnement follows companies including Vodafone Group and AOL Time Warner Inc. in writing down the value of purchases made when the economy was expanding and stocks were surging. Slumping orders at one of U.S. Filter’s units cut the value of the California-based company, the French utility said.
“The world economy is not the same today as in June 2000,” when Vivendi split its water, waste, energy and transport business into a separate company, Proglio said. Without the one-time goodwill charge, 2001 profit rose 23% to $365 million from $297 million the year before.
Vivendi bought U.S. Filter, whose clients include General Motors Corp. and Conoco Inc., to become the top water company in the deregulated U.S. market. The acquisition was the biggest U.S. purchase by a French company at that time.
To return to profit this year, Vivendi Environnement expects to book $870 million from asset sales, including units of U.S. Filter such as its filters and surface-preparation business, Proglio said. Those units are either not part of the water company’s main business or are depressing earnings, he said.
The charge “is simply an accounting change,” Proglio said. The company reduced the book value of its water assets in the U.S. to be consistent with the market value now, and with future cash flows, he said.
RWE, the world’s third-biggest water company, agreed to pay about $7.6 billion for American Water Works Co., the largest publicly traded U.S. water utility, in September. The price valued American Water at about 16 times earnings before interest and tax. Vivendi paid 46.5 times operating profit for U.S. Filter, based on the U.S. company’s 1998 earnings.
Suez’s buyout offer for United Resources Water Inc., No. 2 in the U.S. behind U.S. Filter, valued United Resources at $2.2 billion in stock and assumed debt, or six times sales. Vivendi paid about 1.3 times sales for U.S. Filter, Bloomberg data show.
