Construction Industry News
In an effort to capitalize on growing global awareness of the dangers associated with water shortage, water technology company Xylem Inc. agreed to buy Evoqua Water Technologies Corp. for $7.5 billion in stock transactions on Monday. According to Friday's closing prices, Evoqua owners will receive 0.480 new Xylem shares for every Evoqua stock they currently own, a premium of nearly 29%.
Investors' disapproval of the high price tag caused shares of Xylem, which offers services for water and wastewater treatment, to fall about 8% on Monday after recovering from some previous losses.
The majority of Evoqua's business has recently shown strong interest in its wastewater management sector, but the purchase price, which totals $7.5 billion with debt, alarmed investors, according to CFRA analyst Jonathan Sakraida.
While it's common for buyer stock prices to face pressure from investors after announcing significant trades, the recent rise in the cost of capital and overall macroeconomic unpredictability have made Wall Street investors even more risk-averse to deals than usual, making it harder to successfully complete mergers.
For example, after the industrial behemoth announced an aggressive acquisition approach for National Instruments Corp. earlier in January, investors have punished shares of Emerson Electric.
During a conference call with analysts, xylem executives explained the cost and stated that they expected the purchase to result in cost synergies of about $140 million over three years. After the merger is completed, Xylem shareholders will own approximately 75% of the merged company.
According to Xylem Chief Executive Patrick Decker, there is "clearly an advantage, both in cost and especially in revenue," adding that the companies had not yet committed to revenue targets.
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