Article Last Updated:
Wednesday, February 13, 2002 - 7:28:02 AM MST

GE entering water treatment field

General Electric Co. is getting its hands wet in a new business: industrial water treatment.

The world's largest company in market value said Tuesday it will buy Hercules Inc.'s industrial water-treatment business for $1.8 billion in cash, expanding GE's Wilton-based specialty-materials lines.

Adding the Trevose, Pa.-based BetzDearborn unit will give GE the second-biggest water-treatment company with about $1 billion in revenue and a sales force of 2,000.

The offer continues Chief Executive Officer Jeff Immelt's goal of pursuing acquisitions of businesses with as much as $100 billion in revenue to stem a decline in sales.

It also fits nicely into former CEO Jack Welch's oft-stated goal to be either No. 1 or No. 2 in any business the conglomerate enters.

However a spokeswoman for GE specialty materials said GE didn't purchase the unit for that reason.

"We didn't pick it because the business is No. 2," Milissa Rocker said.

The unit fits well with Fairfield-based GE, because power systems unit already makes some equipment for water treatment and its medical systems unit makes imaging technology that could be used to detect corrosion in pipes, Rocker said.

GE won't preclude purchasing a company that isn't No. 1 or No. 2, but it's a nice bonus, said GE spokesman Gary Sheffer.

"The fact that these guys are market leaders is terrific," Sheffer said.

Analysts were more direct. If it was No. 6 in its field, GE certainly wouldn't have bought it, said Christine Goudreau, an analyst with Wright Investor Service in Milford.

But while GE's acquisitions are usually solid, the timing on this one may not be the greatest because of existing concerns over accounting complexities at the conglomerate, Goudreau said.

"Making a big acquisition just adds to the confusion," Goudreau said. However she added that GE had to strike while the iron was hot.

"You have to do these things when they become available," Goudreau said.

The sale fulfills a pledge Hercules management made in May amid a proxy challenge that it would sell the company, beginning with parts of BetzDearborn, which it bought for $3.1 billion in 1998.

Debt and slowing sales in the water-treatment business have been a drag on earnings for Hercules, which will keep a third of BetzDearborn, its paper-chemicals business.

"What (Hercules) paid for it and what it's worth today are two different things," said David Begleiter, an analyst with ABN Amro Inc., who has an "add" rating on the shares and doesn't own them. "Eventually (Hercules) will all be liquidated. It will all be sold. This solves near-term liquidity pressures."

BetzDearborn is the second-largest maker of chemicals used to remove pollutants from water that flows out of refineries, manufacturing plants and power generators and helps prevent corrosion from water that flows into them. Suez SA in France is the largest company in this business, Begleiter said.

GE will instantly give BetzDearborn name recognition and more customers than the business had before, in part because of a customer base that already uses water treatment chemicals.

The BetzDearborn unit will be the fifth business for GE Specialty Materials, said Rocker. The subsidiary also sells industrial diamonds, fused quartz, silicones and polymer additives used in industries that include oil drilling, construction and telecommunications.

GE split the specialty-materials unit off from its plastics unit in May 2001, in part because it expected to add the chemicals businesses of Honeywell International Inc. That purchase was blocked by European regulators.

Acquisitions may help Immelt stem a decline in sales over the past three quarters. Fourth-quarter profit rose 9.7 percent because Immelt cut costs and GE got more revenue from service contracts, which have higher margins than other products, analysts have said.

The transaction will close in early 2002, both companies said.

Bloomberg News contributed to the report.