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March 2002: Volume 44, Number 3

Return to Merger Mania, Economic Forecasting and Can`t Buy a Loan
by Carlos David Mogoll√≥n, WC&P Executive Editor

By the time you read this, no doubt several other major global mergers and acquisitions (M&A) will have occurred -- their relevance to the water treatment industry either a margin of degree or fathoms apart.

Regardless, a year-end report from market research firm Thomson Financial/First Call noted M&A activity was "Poised for a Comeback After Awful '01," which was deemed the worst year since 1996. A Reuters article on the report points out U.S. deals plummeted 54 percent from 2000. Figures given show volume at $796 billion through Dec. 24, 2001, vs. the previous year's $1.7 trillion. The number of deals was down about a third, falling to 7,107 from 10,990.

"You'll see more consolidation within industries as opposed to across industries," notes Merrill Lynch analyst Steve Baranoff in the article. While the gold rush of the late '90s battle between USFilter and Culligan hasn't lost its luster, the strategic positioning of companies within the water treatment field in recent years seems to bear that out. In this issue, we begin a three-part analysis of the topic by "Drinking Water Dollars" columnist Steve Maxwell.

Since we're prognosticating, a few other juicy newsbits also caught my eye:
* A January CBS MarketWatch article noted that nearly 2 million people were laid off in 2001, more than three times as many as in 2000. About 40 percent of the layoffs occurred after the Sept. 11 terrorist attacks. At MSNBC Online's "The Layoff List," it was said January's layoffs were 32 percent higher than December's, and February's were well past 25,000 by the end of the first week (including 1,860 by Rohm & Haas).

* "WTO Appeals Panel Rules Against U.S." This might seem innocuous, but if U.S. corporations that benefit from not having to pay U.S. taxes on goods or services primarily for sale or use outside the country are suddenly forced to pay those (the WTO ruled it was an unfair subsidy), you can bet there'll be a lot of restating of financial forecasts. This will only complicate any accounting/stock analysis snafus that result from the Enron debacle, whose roots -- a French magazine HydroPlus reported in February -- go back to being forced to buy back spun-off water treatment subsidiary Azurix in 2000.

* Next, I return to the rush of the weeks after Sept. 11. Two releases from Standard & Poor's note the events' impact on corporate credit reports and the housing market. The first involved the impact on those industries directly affected by the attack, tourism, hospitality, airlines, insurers and bankers. The second discussed indirect effects of additional layoffs and general economic softening on lower housing starts and higher mortgage delinquency rates.

Such prospects of doom and gloom seem to be contradicted by generally robust sales dealers say they've experienced since Sept. 11.

That about brings us full circle to the latest news -- that a division of General Electric, which is already selling softeners and refrigerator filtration devices, has acquired BetzDearborn water treatment services. The chemicals specialist, which fetched $1.8 billion for financially troubled Hercules Inc., will become a new business unit of GE Specialty Materials. GE also announced it would drop Glegg from GE Glegg Water Technologies, an industrial water treatment arm it acquired in October 1999.

On a side note, it was confirmed by Household Retail Services Inc., a division of consumer finance giant Household International, that it would no longer provide financing for water treatment equipment beginning in 2003. "We're not particularly getting out of water treatment equipment," said Household account executive Dick Segat. "We're exiting the in-home sales field... It would eliminate financing for that altogether." Others affected include HVAC sales to the home. Segat said in January that a news release would explain the reasons. We're still waiting. Meanwhile, Household is being sued in California for predatory lending practices.