Suez Lyonnaise des Eaux has launched a friendly public tender offer for United Water Resources (NYSE: UWR), the second-largest water distributor in the United States. Suez Lyonnaise des Eaux already held a 32.91 percent stake in UWR capital.

The USD 1 billion public tender offer corresponds to a price of USD 35 per share. Moreover UWR plans to distribute an exceptional dividend of $ 0.48 per share. The Board of UWR has unanimously approved the bid, with the full support of the management team.

UWR grew out of the merger in 1994 of General Water Works (more than 80 percent-owned by Lyonnaise des Eaux since 1982) and Hackensack Water Company, an NYSE-listed company founded in 1869.

United Water Resources, N°2 Private Water Operator in the USA

The United Water group supplies water and wastewater services to 7.5 million people through two companies:

• United Water Resources (UWR) operating on the 'rate-regulated'* market, with 2.5 million people served in 13 States, primarily in the East of United States. UWR reported sales of USD 356 million in 1998 and USD 43.9 million net income.
• United Water Services (UWS) a 50/50 joint-subsidiary of UWR and Suez Lyonnaise des Eaux, operating on the 'non-rate-regulated'* market with 5 million people served in 12 States. UWS sales amounted to USD 101 million in 1998 and are expected to total USD 160 million in 1999.

UWR also indirectly holds a 10% stake in Northumbrian Water Group.

A Strategic Move for the Development of Lyonnaise des Eaux in the USA

Commenting on this transaction, Gérard Mestrallet, Suez Lyonnaise des Eaux' Chief Executive Officer and President of the Executive Board, said: "Today's acquisition is a significant step forward for Lyonnaise des Eaux' expansion in the United States. It reinforces our existing leadership on the delegated water management market, a leadership which we achieved with our recent successes in Atlanta, Milwaukee, Indianapolis and Gary." "The full control of UWR will enable us to grow more efficiently and more rapidly in the US market, currently the fastest-growing in the world and offering greater opportunities for private initiative."

Mr Mestrallet continues: "With the recent acquisition of Nalco and Calgon, Suez Lyonnaise des Eaux further strengthens its position in the US industrial and municipal water services market."

The operation will be immediately cash accretive before goodwill amortization, and from the third year after amortization.

This acquisition is subject to approval of the relevant authorities, namely: the Federal Trade Commission (FTC), Securities Exchange Commission (SEC), and the Public Utilities Commissions (PUCs) of the States concerned.

Attention:
The offers are not made and will not be made either directly or indirectly in the United States. Securities may not be offered or sold in the United States in the absence of the Securities and Exchange Commission (SEC) registration, unless the SEC exempts the securities from registration. The new shares to be issued in connection with the offer are not and will not be registered in accordance with the U.S. Securities Act of 1933 and may not be offered, sold or delivered directly or indirectly in the United States.

THE US WATER MARKET AND UNITED WATER

The US municipal water market is worth USD 40 billion annual revenues. It is highly fragmented with currently 60,000 water companies operating in the market. An EPA (Environmental Protection Agency) study states that USD 250 billion will have to be invested in the US water and wastewater market over the next 20 years to bring it up to standards.
The US market is divided between private utility-companies (operating on a 'rate-regulated' market), or public utilities (mainly municipally-owned). In recent years, local governments have increasingly been outsourcing their water services to private companies (the 'non-rate-regulated' market).

The 'Rate-regulated' Market

In the rate-regulated market, private utility-companies own the assets (plants, mains systems, etc.) and are submitted to the rules set by the State's Public Authorities in which they operate. Public Utility Commissions (PUCs) regulate their activities, setting rates charged by these companies.

Market facts and figures:

• 12% of US drinking water; 0% of US wastewater,
• 32 million people served,
• USD5 billion 1998 revenues,
• United Water Resources is ranked # 2

The 'Non-rate-regulated' Market

Within the US municipal market, public-private partnership or contract operations refer to the outsourcing of water / wastewater system management and operation by municipalities to private operators. The contract signed between the municipality and the private operator sets water tariffs and return on investment.
The new January 1997 legislation on Tax-Free Federal bonds enables long-term contracts (up to 20 years) to be signed between municipalities and private operators, allowing the operators to invest significantly in water and wastewater infrastructure to enhance the quality of their operations.
Revenues generated by these public-private partnerships already top USD 1 billion in 1999 and the market is expected to grow annually by around 20 - 30%. United Water Services is setting the pace of the industry and ranked # 2 in the sector.

Municipal market facts and figures:

• 88% of US drinking water market; 100% of US wastewater market,
• 237 million people served,
• USD 35 billion 1998 revenues.