Nov. 24 (Bloomberg) -- General Electric Co., the world's largest company by market value, 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 will get $44 a share, a 48 percent premium to yesterday's price, General Electric said in a statement. The purchase will add desalination and filtration to the company's industrial water-treatment business, the world's second-largest. General Electric said it now will be able to accelerate research on water-purification technology while expanding financing for Ionic's customers in China and Middle East.
Chief Executive Jeffrey Immelt is counting on acquisitions to help push yearly profit up at least 10 percent 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 General Electric shares. ``When GE consolidates an industry they want a total solution and they needed Ionics to provide that.'' Shares of Fairfield, Connecticut-based General Electric fell 15 cents to $35.66 at 3:04 p.m. in New York Stock Exchange composite trading. They have climbed 25 percent in the past year. Ionics, whose shares had dropped 6.3 percent in the past year, surged $13.54, or 46 percent, to $43.29. Water Business Ionics, formed in 1948, is the fourth-largest U.S. water- treatment company by sales.
The Watertown, Massachusetts-based company had a net loss of $44.8 million last year on revenue of $347.4 million. Investors holding 20 percent of Ionics' stock outstanding agreed to vote their shares in favor of the transaction, General Electric's statement said. General Electric's net income is expected to increase by at least 6 percent this year, the average estimate of analysts surveyed by Thomson Financial, as Immelt integrates acquisitions. He's building businesses with faster growth and less exposure to economic swings, while targeting regions such as Asia. Synergies 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 will 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.''
Some analysts winced at the cost. ``GE's paying up for these assets,'' said Jim Zhao, analyst at Federated Global Investment Management, which owns 11.86 million General Electric shares. Steve Hoedt, an analyst with National City Corp. in Cleveland, said, ``The price is expensive. Sometimes GE does things that leave investors scratching their heads, but they should be able to clean up Ionics rather quickly.'' National City had 23.5 million General Electric shares as of September. Seeking Growth Ionics has sold or installed more than 3,000 desalination plants. Nearly half of its sales came from outside the U.S. ``Ionics had to finance many of its third-world projects just to sell product, and there are financing disputes with countries like Trinidad, which have been going on for years,'' said Alan Fournier, general partner for Pennant Capital, which manages about $750 million in assets and has short interest in Ionics. ``GE must be desperately seeking growth to buy this company at this price.''
Government requirements for cleaner drinking water and better wastewater treatment have spurred demand and led to industry consolidation. Siemens AG, Germany's largest engineering company, in August acquired most of U.S. Filter Corp. for $993 million. The World Health Organization estimates that, globally, 1.1 billion people lack access to clean water, and that 2.4 billion lack access to basic sanitation. As water shortages plague almost every country in North Africa and the Middle East, desalination of seawater is growing as a source of fresh water. Building Water Immelt began building GE Water two years ago by purchasing BetzDearborn for $1.8 billion. That gave GE a water-treatment company with about $1 billion in revenue, and chemicals used to remove pollutants from water that flows out of refineries, manufacturing plants and power plants and helps prevent corrosion from water that flows into them. ``They seem to be positioning themselves for a world that is short on clean water and clean energy,'' said Brian James, an analyst at Loomis Sayles in Boston.
Loomis Sayles had 5.79 million shares of General Electric as of the end of September. GE Infrastructure's businesses also include sensors, security and factory-automation software. The Ionics purchase is expected to close in the first half of 2005, General Electric said in the statement. GE Infrastructure's revenue will rise at least 15 percent in 2005 from this year's $3.5 billion, Woodburn said. The company's industrial water-treatment business trails Nalco, a former Suez SA unit sold to a group of investors including Blackstone Group last year, Woodburn said. General Electric also will assume about $200 million in debt. It is too early to discuss potential job cuts, spokesman Jeff Demarrais said.
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Last Updated: November 24, 2004 15:06 EST