Thames to Buy Elizabethtown Water

Tuesday, November 23, 1999

The Associated Press

WESTFIELD -- A British utility has agreed to buy New Jersey water company E'town Corp. for $607 million, or $68 per share, the companies announced Monday.

Under the agreement, Thames Water PLC of London will also assume E'town's net debt, as of Sept. 30, of $341 million. The deal is subject to approval by U.S. regulators and could take nine to 12 months to complete.

It will take the form of a merger between E'town and a newly formed subsidiary of Thames Water, the companies said.

The purchase comes three months after another European water company,
Paris-based Suez Lyonnaise des Eaux SA, announced that it was buying 100 percent of United Water Resources Inc. for $1.8 billion. Suez Lyonnaise already owned 30 percent of the Harrington Park-based utility.

The sale, which faces regulatory approval in New Jersey and several other states, is expected to be finalized by the middle of next year.

E'town's holdings include New Jersey water utilities Elizabethtown Water Co. and The Mount Holly Water Co. The water companies serve more than 1 million people in Somerset, Union, Burlington, Hunterdon, and Middlesex counties and Chester in Morris County. The company also operates a sewage utility, Applied Wastewater Management Inc.; an engineering business, Applied Water Management Inc.; and a real estate company, E'town Properties Inc.

Thames Water is the third-largest global water service provider, behind Vivendi SA of France and Suez Lyonnaise, with more than 21 million customers and 12,500 employees worldwide. It serves nearly 10 million customers outside the United Kingdom.

For the 12 months ending Sept. 30, E'town had revenues of $159.4 million and earnings of $24.5 million. Thames Water's international operations generated profits of $33.8 million on sales of $104.9 million in the six-month period ending Sept. 30.

Thames Water's acquisition of E'town will boost its status as a leader in water treatment around the world, said the British company's chief executive, Bill Alexander.

"E'town brings us close to matching overseas what we have in the U.K.," Alexander said. "We'll soon see our profits from international operations growing even more."

E'town Chairman Anne Evans Estabrook said her company's board believes the affiliation with a larger international company will benefit stockholders, customers, and employees alike.

Under the agreement, Thames Water agreed to a one-year moratorium on any layoffs from the date that the acquisition is completed, said E'town spokeswoman Erin Reilly. E'town has about 420 employees, she said.

Shares of E'Town Corp. rose 10 1/4, to 62 1/8, on the New York Stock Exchange.

Copyright 1999 Bergen Record Corp.

From E'Town's Headquarters:

Thames Water Plc Proposed Acquisition of E'town Corporation
-"E'town"- Provides for Further North American Expansion


Updated 4:00 AM ET November 22, 1999


WESTFIELD, N.J. (BUSINESS WIRE) - E'town (NYSE:ETW)
today announces that it has entered into an agreement with Thames Water Plc ("Thames Water") under which Thames Water has agreed, subject to certain conditions, to acquire E'town for $607 million, or $68 per share, in cash. Thames Water will also assume the net debt of E'town, which was $341 million as of September 30, 1999. The acquisition will take the form of a merger of E'town with a newly formed subsidiary of Thames Water.

Anne Evans Estabrook, chairman of E'town said, "The Board of E'town believes that the offer by Thames Water is in the best interests of our shareholders, customers and employees who will all benefit from the advantages of E'town becoming part of a larger international company. "The offer has the Board's full support and management looks forward to developing the business vigorously as part of Thames Water."

William Alexander, chief executive of Thames Water said, "This transaction will reinforce our position as the leading company solely focused on providing water and wastewater operations and services around the world.

"Thames Water has been building its presence in the U.S. for some time and we have concluded that the scale and speed with which we can secure new business would be significantly enhanced by this acquisition. E'town has a proven track record, is well placed for growth and operates in a region with strong potential. In addition, we share a passion for excellence in customer service and together our capability to address opportunities on a broader front will be considerably strengthened."

E'town operates in New Jersey and is one of the largest investor-owned water utilities in the United States. E'town is made up of two regulated water utilities (Elizabethtown Water Company and The Mount Holly Water Company), two non-regulated contract operations (Liberty Water Company and Edison Water Company), a regulated wastewater company (Applied Wastewater Management, Inc.), an engineering/operations business (Applied Water Management, Inc.) and a real estate company (E'town Properties, Inc.). In the year ended December 31, 1998, E'town supplied 51 billion gallons of water to approximately 234,000 retail customers, serving a population of more than 1 million people.

For the twelve months ended September 30, 1999, E'town had revenue of $159.4 million, and net income of $24.5 million. E'town's shareholders' equity was $229 million as of September 30, 1999.

The acquisition of E'town Corporation represents an important step in the continuing development of Thames Water's international activities and enhance its ability to accelerate the growth of its operations in North America. Thames Water is the third largest global water service provider with more than 21 million customers and 12,500 employees worldwide.

Thames Water's strategy is to develop its position as the leading company solely focused on providing water and wastewater operations and services around the world. Expanding its presence in North America (the largest market in the world) complements Thames' established businesses in Europe and Asia. Thames Water currently serves a customer base of more than 9.8 million outside of the U.K., and its international operations generated an operating profit of $33.8 million on sales of $104. 9 million in the six months ended September 30, 1999.

The acquisition of E'town will constitute Thames Water's most significant investment in the United States market and will make a major contribution to its international profile and spread of activities. The United States is expected to provide opportunities for profitable growth in the water and wastewater market, particularly as municipal authorities are increasingly willing to outsource these operations to private companies.

Thames Water intends to work closely with the E'town management team in order to support the future development of the company and to achieve the added value that will be generated by the combination of these two successful companies. Anne Estabrook, chairman of E'town since May 1997 and a director of E'town since 1985, will have an advisory role within Thames Water International. Andrew Chapman, president of E'town since May 1997 and a director of E'town since 1995, has agreed to lead E'town's management team.

The acquisition requires the approval of E'town shareholders. This approval will be sought at a special shareholders meeting expected to be held during the first quarter of 2000. The acquisition is also subject to approval by the New Jersey Board of Public Utilities and the
United States antitrust authorities. These approvals are expected to be secured before the fourth quarter of 2000.

Contact: E'town Corporation Gail P. Brady Sr. Vice President, Chief Financial Officer & Treasurer (908) 301-3200

The View from London

Thames buys E'town for $922.8 million

Updated 3:27 PM ET November 22, 1999

By Mike Elliott

LONDON (Reuters) - British utility Thames Water Plc, facing regulatory constraints at home, Monday took the latest step in its strategy of expanding overseas with the 575 million pound ($922.8 million) buy of U.S. utility E'town Corp.

Thames is paying 367.9 million pounds cash and will assume $206.7 million pounds of the U.S. water company's debt.

The move prompted a fall in Thames shares on worries over the high price paid. "Fund managers in general are averse to acquisitions in regulated industries," said one sector specialist. "The same thing happened to (British power utility) Scottish Power when it went for (U.S. based) PacifiCorp."

But Thames was confident it could make the acquisition pay.

"It's a substantial bite, but given the scale of Thames Water we're not uncomfortable in terms of its impact on the balance sheet," Finance Director David Luffron told Reuters.

Thames said the acquisition in New Jersey would provide for further expansion in the North American market and was expected to enhance earnings in the first full year of ownership.

The group also said it had appointed former U.S. senator and Northern Ireland peacemaker George Mitchell to its newly-formed International Advisory Board. Mitchell has worked on water legislation in the U.S.

Thames is paying $68 for each E'town share, which had closed Friday at $51-7/8. E'town achieved operating profit of $51.6 million on sales of $145.5 last year.

"This transaction will reinforce our position as the leading company solely focused on providing water and waste water operations and services around the world," Chief Executive Bill Alexander said in a statement.

Thames shares, which have underperformed the FTSE All Share index by almost 30 percent in the year to date, closed down 3.9 percent at 884-1/2p.

"People are worrying whether they've paid too much," said William de Broe analyst Nigel Hawkins.

"On a per-customer basis they've paid a lot more than Kelda did for Aquarion, and they were seen as paying too much," said Hawkins, referring to the proposed $444 million purchase by Kelda Group Plc -- formerly known as Yorkshire Water -- of U.S. water supplier Aquarion Co.

But analysts pointed out that with a payment of around 14 times EBITDA (earnings before interest tax, depreciation and amortisation), the purchase compared well with French group Vivendi's purchase of U.S. Filter earlier this year at 15.3 times EBITDA.

AWAITING FINAL OFWAT PROPOSALS

Thames has been looking to expand overseas to help offset tough regulatory prices controls at home by industry regulator OFWAT that could eat into the company's cash flow.

In July, OFWAT chief Ian Byatt had proposed that the water companies make an average price cut of around 14 percent next year and raise them by no more than inflation in the following four years. His final proposals are due out Thursday.

E'town would boost Thames's U.S. revenues threefold to around 150 million pounds a year, and give it the means to expand even further in the world's biggest water market.

"It's a good strategic platform for taking off in the U.S.," Alexander told Reuters in a telephone interview.

Thames said it saw "significant new opportunities" in the North American market and believed the two groups together would be in a strong position to secure further business.

The deal would be subject to regulatory approval but this was expected to be secured before the last quarter of 2000.

Thames already operates in Australia, China, Indonesia, Malaysia, Puerto Rico, Thailand and Turkey. In May, the group said it was linking up with Electricidade de Portugal to focus
on water and water treatment in Portugal and South America.

Earlier this month, Thames reported first half pre-tax profits before exceptional items of 204 million pounds, from 207 million the year before. International operations contributed 11 million pounds, up from six million.

($1-.6177 Pound)
LONDON (November 23, 1999 6:23 a.m. EST  -
  _______________________________________________________

From London Times:

British water utility Thames Water agreed to buy U.S. water company E'Town Corp. (parent of Elizabethtown Water) for $590 million in a bid to expand overseas and boost its status as a world leader in water treatment, said the British firm's chief executive Bill Alexander. Thames Water has 12 million British customers and almost 10 million overseas. E'Town CEO, Andrew Chapman, could not be reached by the Water Industry Council for comment.

E'Town operates in New Jersey and owns several utilities providing water, sewerage and engineering services. It has 1 million customers for water alone.

Former Sen. George Mitchell was hired by Thames Water PLC as an aquisition adviser less than a week after he stepped down as chairman of the Northern Ireland peace talks, company officials announced Monday.
Mitchell is experienced with laws affecting water use, including the U.S. Clean Water Act of 1987, from his days as a Democratic senator from Maine.

Analysts in the United Kingdom said Thames Water hoped to draw on Mitchell's political experience in the United States to help it make further acquisitions there.

British utilities have looked increasingly to expand in North America to avoid the regulatory constraints imposed on them in Britain.

The acquisition of E'town is subject to approval from U.S. competition authorities and utility watchdogs. Thames said it expects to win approval within a year.