Vivendi to Buy US Filter

Here's an idea for a great business. The product's uses are nearly unlimited: industrial, recreational, culinary, medicinal. There's limited supply and unceasing demand.
     The business is water. We're not talking about bottled designer water, but the stuff that comes out of the tap or washes sewage down the pipes. In the U.S., it generates more than $80 billion in annual revenue--about five times the sales of Microsoft Corp.
     But "business" isn't quite the right word. "About 85% of our drinking water, and an even larger percentage of waste-water services, are provided by municipal-owned systems that mainly serve local communities," writes John Milner, an analyst for the Value Line Investment Survey.
     These muni utilities have a problem. The 1996 Safe Drinking Water Act and other laws require them to renovate their crumbling systems. Many cities don't have the money, so they are turning to corporations to run the facilities or buy them.
     The irony is that the Europeans are far ahead of us. Last month, France's Vivendi (Latin for "living") announced plans to buy Palm Desert-based U.S. Filter Corp., which runs water plants and provides water engineering for utilities, for $6.2 billion in cash.
     The deal would make Vivendi the world's largest water company, with 75 million customers.
     While the price tag is steep in absolute dollars, Vivendi might be getting a bargain in U.S. Filter, paying $31.50 a share for stock that was as high as $43.75 in 1997.
     Vivendi was born in 1853 as a partnership called Compagnie Generale des Eaux, growing into a wildly diversified conglomerate with interests in waste incineration, publishing, Internet services, amusement parks and railroads.
     In 1996, Jean-Marie Messier became chief executive, changed the firm's name and tightened its focus. Earlier in the decade, Vivendi had expanded into Latin America and Asia, but Messier drew a bead on the U.S., which has only just begun to privatize water.
     Vivendi stock has surged since late 1996. The company's U.S.-traded shares (which trade on relatively low volume in the over-the-counter market) rose from $17 in October 1996 to a recent high of $58, and closed Wednesday at $50.75. The shares (ticker symbol: VVIDY) are American depositary receipts and track trading of the main stock in Paris.