May 27, 2004
Looking to keep the tide of its potable water business rising, water and gas filtration products maker CUNO (Nasdaq: CUNO ) announced plans yesterday to buy competitor WTC Industries in a deal valued at $110 million, including assumption of debt.
In CUNO's recently released second-quarter results, sales across the firm's product lines were strong, but its potable water segment led the charge with a 21% jump in revenue to $37.9 million from $31.3 million. (Total sales were $158.2 million.)
Indeed, even without the WTC Industries acquisition, the company's potable water business was flowing nicely. The firm recently signed an agreement under which it will manufacture 32 water filtration and treatment products under the Whirlpool (NYSE: WHR ) brand name to be sold at Lowe's (NYSE: LOW ) stores. In a separate pact, CUNO will manufacture next-generation water filtration systems for Nu Skin Enterprises (NYSE: NUS ) . The new systems will follow in the footsteps of products Nu Skin has marketed in Asia.
WTC Industries, meanwhile, likewise has been swimming in business. The company announced back in Nov. 2003 that it was exploring a possible merger or strategic alliance in light of its rapid growth and capital needs. CUNO was an ideal suitor given its fit with WTC Industries. WTC Industries has been particularly strong in selling filtration products for refrigerators, including those sold by General Electric (NYSE: GE ) and Maytag's (NYSE: MYG ) Amana.
With rising demand for water filtration systems and WTC Industries' established relationships with strong brands, there's little doubt that CUNO's acquisition plans hold water. At 26 times forward earnings, though, CUNO stock is pricey. Still, the WTC Industries purchase, which is not expected to close until the third quarter, will no doubt open the spigot on higher earnings growth.
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Fool contributor Brian Gormanis a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.