General Electric to Buy Ionics for $1.1 Billion

General Electric Co. said Wednesday that it agreed to buy Ionics Inc. for $1.1 billion in cash to tap rising demand for water purification and treatment in developing countries.

Ionic investors would get $44 a share, a 48% premium to Ionic’s closing stock price Tuesday. Ionics shares surged $13.53, or 45%, to $43.28 on Wednesday.

Shares of Fairfield, Conn.-based GE fell 17 cents to $35.64 on the New York Stock Exchange.

For GE, the purchase would add desalination and filtration to the company’s industrial water-treatment business, the world’s second-largest.

GE said it would be able to accelerate research on water-purification technology while expanding financing for Ionic’s customers in China and the Middle East. Chief Executive Jeffrey Immelt is counting on acquisitions to help lift yearly profit at least 10% starting next year.

“This acquisition can’t be looked at by itself,” said Mark Demos, an analyst in Cincinnati with Fifth Third Investment Advisors, which owns more than 14 million GE shares. “When GE consolidates an industry, they want a total solution and they needed Ionics to provide that.”

Ionics, formed in 1948, is the fourth-largest U.S. water-treatment company by sales. The Watertown, Mass.-based company had a net loss of $44.8 million last year on revenue of $347.4 million.

Investors holding 20% of Ionics’ stock outstanding agreed to vote their shares in favor of the transaction, GE said.

GE’s net income is expected to increase by at least 6% this year, the average estimate of analysts surveyed by Thomson First Call, as Immelt integrates acquisitions. He is building businesses with faster growth and less exposure to economic swings, while targeting regions such as Asia.

The company expects “significant” savings and cooperation among salespeople, said William Woodburn, head of GE Infrastructure, the unit that oversees the water business. GE Water’s sales force would be able to pitch mobile water services, which provide clean water during construction, renovation and crisis, Woodburn said.

“We paid a premium, but it’s well worth it,” Woodburn said. “I call it a smart acquisition because of the amount of synergies and growth capabilities with the financing market, and the reach of our customer base with 2,200 salespeople that now have access to that mobile water fleet.”

Ionics is the fifth acquisition of more than $1 billion in cash announced by GE this year.

Government requirements for cleaner drinking water and better wastewater treatment have spurred demand and led to industry consolidation. Siemens, Germany’s largest engineering company, in August acquired most of U.S. Filter Corp. for $993 million.