Veolia plans to sell chunk of USFilter
CEO Seidel says it could take a year to find buyer for $2 billion proposal

Pat Maio
Desert Sun Business Editor
September 25th, 2003

-- French water company Veolia Environnement SA, parent of locally based USFilter, said Wednesday that it wrote down about $2.5 billion in the value of USFilter in order to prepare for sale the lion’s portion of its operations in North America.

Early Wednesday, Veolia reported a big loss for the first half of 2003, indicating it needed to get out from under a debt load of $13 billion.

This is the second time Veolia has written off the value of USFilter, the first coming in early 2002 when the French firm also wrote off $2.5 billion.

As part of its plans to shed about $2 billion in debt, Veolia identified the sale of a significant chunk of Palm Desert-based USFilter -- worth about $2 billion, according to Andy Seidel, chief executive of USFilter.

"That is a fair price," said Seidel, adding that not all of the company will be sold.

News of the impending sale was first reported Wednesday on The Desert Sun’s Web site.

He also said it could take from nine months to a year to find a buyer.

There are no assurances the buyer would keep the corporate headquarters in Palm Desert, which employs roughly 35, Seidel said.

According to industry analysts, potential strategic buyers might include General Electric Co., Ashland Inc. or ITT Industries Inc.

Also cited is a trend whereby private equity firms have entered the fray in purchasing water-related infrastructure assets.

Analysts pointed to a group led by U.S. private-equity firms Blackstone Group and Apollo Management LP, and investment bank Goldman Sachs, who announced plans this summer to buy French water-and-energy conglomerate Suez SA’s (SZE) water-treatment-supplies unit for roughly $4 billion.

The USFilter businesses up for sale include water treatment and wastewater equipment units as well as Culligan and Everpure, distributors of water filters and bottled water to residential and business customers.

The Culligan and Everpure businesses generated about $740 million in annual revenue, while the System and Services business had about $1.2 billion in sales, according to Seidel.

Veolia said it plans to retain some parts of its U.S. division --namely its long-term services business with USFilter that generates about $600 million in annual revenue and employs about 3,300.

Veolia said the move is the result of a decision to focus on water concession and outsourcing contracts with municipalities and industrial customers.

For instance, the company manages the wastewater-treatment plant for the city of Palm Springs and has been credited with creating considerable savings for the city. Culligan also has a facility in Indio.

Veolia previously had taken steps to slim down USFilter with the disposal of several units such as housing and filter maker Plymouth in 2002, and abrasives products-maker Surface Preparation in July.

At the height of the stock market frenzy of the late 1990s, when many acquisitions were overvalued, Veolia, then called Vivendi Environment, bought USFilter for a total of $8.4 billion.

At that time in 1999, the company’s aim was to use USFilter as a springboard to clinch water concession and outsourcing deals in the United States, a country where most cities rely on in-house solutions for water distribution needs.

Some analysts were surprised by Wednesday’s announcement.

There had been some rumblings that USFilter would sell Culligan, and Seidel confirmed that serious discussions on the matter actually began in July.

But Seidel said the decision to sell the broader range of businesses was made a week and a half ago.

"I think it is a surprise to sell as much as they are willing to sell," said Mark Lewis, analyst with Deutsche Bank in Paris. "It’s quite a brave move."

Neil D. Berlant, managing director of the water group of The Seidler Cos. Inc. in Los Angeles, said Veolia’s decision to sell big chunks of USFilter’s business is a good gambit.

"The prospects for growth of the various pieces of USFilter is quite good," Berlant said.

He said that USFilter never was able to get sufficient traction with its businesses, mainly because it was owned by an international corporation in Paris, while the North American business was centered in Palm Desert.

Tuesday evening, prior to announcement of the USFilter news, the 41-year old Seidel made a personal call to his long-time friend Richard J. Heckmann, who had recruited Seidel in the early 1990s when
USFilter was only a $17 million firm poised to go on an acquisition binge.

Heckmann, when reached at his Palm Springs International Airport hangar office, just prior to jetting off on a two-week-long vacation to Ireland, was surprised by Seidel’s news.

As for Seidel, who as a graduate of the Wharton School of the University of Pennsylvania recruited a few of his classmates to join USFilter, his future is tenuous.

"I’d love to stay in the valley," he said. The Veolia relationship has been less than ideal, especially given that the French and American cultures in business didn’t always meld.