U S FILTER (USF) A Water Stock ! Message Board

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Non-Tech : U S FILTER (USF) A Water Stock !

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To: SFJayhawk who wrote (81)	9/18/1997 4:31:00 PM
From: Robert F. Newton	of 361

From AOL/Motley Fool Lunchtime News An Investment Opinion by Randy Befumo FOOL PLATE SPECIAL: Consolidator Consolidating ~~~~~~~~~~~~~~~~~~~~~~~ U.S. FILTER (NYSE: USF) dropped a bombshell on Australian-based MEMTEC LTD. (Nasdaq: MMTCY) yesterday evening when the Palm Desert, California-based water filtration consolidator bid $30 a share for the company. The deal is a 21.8% premium to Memtec Ltd.'s closing price and values the entire company at $330 million. The move fits perfectly within U.S. Filter's operating strategy of consolidating smaller filtration companies into one magnificent water filtration empire. The company already has been nibbling at Memtec and currently owns 4.9% of the outstanding shares. Executives at Memtec were skeptical about the deal, saying that it was "opportunistic" and did not reflect Memtec's intrinsic value. Although the deal is at a premium to Memtec's recent price, just a year ago the company's share price was substantially higher. Management of the filtration systems developer and marketer pointed to the price PALL CORP. (NYSE: PLL) paid to acquire Gelman Sciences last year as an indication of what might constitute a fair price. Gelman was purchased at roughly 2.2 times sales compared to the valuation of Memtec at 1.5 times sales implicit in this deal. Although over the past three years U.S. Filter has been a huge winner, the last year has been pretty choppy for the company. By acquiring a profitable company at a slight discount to its current valuation, U.S. Filter could squeeze out some operating efficiencies and really jump start its share price. The fact that the deal is being done in cash makes it especially attractive, because if it were completed it would substantially reduce U.S. Filter's valuations and increase earnings estimates. With U.S. Filter trading at 22 times 1998 earnings, investors have been skittish about accumulating shares over the past few months. This acquisition would bump up the trailing earnings per share (EPS) by 13.9 cents and could increase the $1.80 EPS estimates to $2.10 EPS or higher, dropping the valuation by 20%.

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