United Water Resources, Inc. Business Information, Profile, and History

Company Perspectives:

United Water seeks to be the premier water services company in North America. 'Premier' designation is never ours to claim or own. We earn it only through the eyes of our customers, our employees, our shareholders and the communities where we operate. And every day we must earn it all over again. Our corporate logo, the water star, symbolizes our mission to be premier. The individual drops represent what we strive to provide our customers--pure, clean water and stellar service.

History of United Water Resources, Inc.

A subsidiary of French conglomerate Suez Lyonnaise des Eaux since July 2000, New Jersey-based United Water Resources, Inc. is a holding company for a number of entities that together comprise the second largest nonmunicipal water services company in the United States. United Water New Jersey serves customers in northeastern New Jersey, while United Water New York serves customers in Rockland County, New York. United Properties Group is involved in the real estate business, primarily created to take advantage of 1,000 acres of valuable land the company has accumulated over the years in the suburbs outside of New York City, in both New York State and New Jersey. United Waterworks provides water and wastewater services in 11 states. United Water and Suez Lyonnaise have become especially active in the management of municipal-owned water systems, which in recent years cities have been looking to turn over to private firms. United Water and its French parent corporation also have a stake in the British market through United Water UK Limited.

Founding of Original Company in 1869

For more than 100 years, United Water was known as the Hackensack Water Company. Although ensconced in a farming area, the village of Hackensack emerged as a commercial center after the Civil War, and its close proximity to Manhattan proved an attractive place to build homes for many New York businessmen and bankers. Because Hackensack was quickly outgrowing its wells and cisterns, it became apparent that the community needed a public water system. Two companies headed by rival politicians were formed. Charles H. Voorhis obtained a state charter for the Cherry Hill Water and Gas Company; he was followed by Garret Ackerson, whose Hackensack Water Company was approved by the New Jersey Senate on February 24, 1869. The special Act of the Legislature was signed into law by the governor on March 12, 1869. Voorhis and Ackerson then became preoccupied with the formation of new banks, and both water charters were neglected until 1873, when local citizens and newspapers began to clamor for action. Because Ackerson's charter had more extensive powers than those assigned to Cherry Hill, Voorhis contrived a way to gain a controlling interest in Hackensack Water. It was only then that he began to construct a water system. A large brick reservoir was built on a hill north of Hackensack, pumping facilities were set up to draw water from the Hackensack River, and a network of conduits were laid in the village that would be fed by gravity from the reservoir. On October 21, 1874, the system was complete and service began.

Unfortunately for Voorhis, he began construction on the Hacksensack Water Company in the midst of the Wall Street Panic of 1873 that precipitated a seven-year economic depression. His plans to supply water to a large portion of Bergen County, New Jersey, were never to be realized. By 1879 the Water Company was unable to pay its debts, and all of Voorhis's ventures, the finances of which propped up one another, quickly failed. He lost everything, including his reputation. In the end he was reduced to living in a small Hoboken flat where he killed himself, with nothing but $5 in an envelope to leave his distraught wife.

The Water Company went into receivership, then was acquired and reorganized by Bacot & Ward, the engineers and contractors who built the system. After signing a ten-year deal to supply water to Hoboken, the new owners were unable to command the necessary finances to build the line. In 1881 they sold Hackensack Water to a new group of investors who elected prominent Manhattan lawyer and socialite Robert W. de Forest to run the operation. He would do so for the next 46 years.

In 1886 Hackensack Water issued its first share of common stock, and on January 9, 1889, it was listed on the New York Stock Exchange. It would remain on the Big Board for the next 111 years continuously, a distinction shared by only a handful of companies. In addition, only one other company among this group could boast a record of paying longer continuous dividends. Under de Forest, Hackensack Water constructed new facilities and moved its headquarters to Weehawken, setting up offices in a massive brick water tower. Steadily, other towns in Bergen County were added to the system. The company was secure enough to withstand the Panic of 1893 with little difficulty.

Hackensack Water had suffered occasional adverse publicity about water quality, much of which was caused by a poor understanding of how to treat organisms, such as algae, that grew in the reservoirs and caused a 'fishy taste.' During the 1890s, however, the science of water treatment began to make great strides. Microscopic studies of water were able to isolate what caused the poor taste and bad odors that were so prevalent in water supplies, and led to experimentation in filtering systems. These filters occupied patches of land an acre or two in size where water could pass through layers of sand. More than just improving the color and flavor of water, filtration would become critical in reducing water-borne disease. European cities led the way. By the end of the century 11 million people in England would be supplied by filtered water, as would 4.6 million in Germany, 1.4 million in Holland, and approximately three million more in the rest of Europe. In the United States only a handful of communities used some form of filtration, and only two (Poughkeepsie and Albany, New York) had systems comparable in size to Hackensack Water. It was evidence of a forward-thinking company that Hackensack Water would invest in filtration as well as building the additional reservoir that would be required. Moreover, when the Jersey City water supply became the first in the United States to use chlorination to fight bacteria in 1908, Hackensack Water quickly followed suit.

Acquiring Spring Valley Water Company in 1900

In October 1900, Hackensack Water made a minor acquisition that would over the course of time provide a major portion of the company's business. It bought all the outstanding stock of the Spring Valley Water Works and Supply Company located in Rockland County, New York. Incorporated in New York in 1893, the system had but one employee and 91 customers. What de Forest was smart enough to realize, however, was that despite operating in another state, Spring Valley shared the same watershed. Its acquisition would help to protect the integrity of the water supply for the entire region, not just the territory of one company or another. As a subsidiary of Hackensack Water, Spring Valley would upgrade its facilities and begin to add communities to its system in a manner similar to Hackensack Water.

During the early part of the 20th century, the region surrounding New York City grew at a tremendous pace. Between 1890 and 1910, Bergen County saw its population jump by 300 percent. Hackensack Water continued to expand its operations to meet a rising demand. Even the introduction of a Public Utilities Commission to regulate rates proved to be beneficial to the company. A 1917 Commission study established a uniform system of rates and essentially confirmed to the public that Hackensack Water was not bilking its customers, as newspapers and headline-seeking politicians had been in the habit of claiming.

During World War I the company supplied water to a major embarkation camp that was built in Bergen County. In a matter of months Hackensack Water was able to add to its system an army camp that was the size of a 42,000-person city. Following a short economic depression after the war, the company entered a boom period. After running Hackensack Water for more than four decades, de Forest, almost 80 years old, retired in 1926. His successor, Nicholas S. Hill, was quick to make plans for future expansion; he anticipated a growing need for water supplies for the new housing units that were sure to spring up in Bergen County when the George Washington Bridge, crossing the Hudson River in upper Manhattan, was completed in 1931. Plans were drawn up for a major dam that would raise the level of the Hackensack River, and the process of acquiring thousands of acres of land that would be flooded to make a new reservoir was begun.

The stock market crash of 1929 changed everything. All construction on new housing came to an abrupt stop. Customers cut back on their consumption of water, making a new reservoir unnecessary. Although Hackensack Water remained one of the few stable stocks on the Big Board, it still had trouble raising the necessary funds to pay off the land and other expenses incurred during the heady days of expansion plans. Even the opening of the George Washington Bridge did little to change the economics of Bergen County. Not until the end of World War II would the area begin to feel the true impact of the bridge.

When the company initiated postwar plans to build a major reservoir in New York State, eventually named de Forest Lake Reservoir, it came under heavy fire from critics who claimed that Spring Valley was being used by Hackensack Water to steal New York water. After years of legal wrangling, the new reservoir finally opened in 1957.

In addition to internal growth Hackensack Water continued to bring smaller water companies into its fold. In 1958 it purchased the Montvale Water Company, in 1963 the Bogota Water Company, and in 1965 the water system of the Borough of Franklin Lakes. In 1950 Hackensack Water served 105,000 customers, totaling a population of 500,000, with equipment and facilities worth $40 million. By 1969 its customers had increased 81 percent to about 190,000, and its plant and equipment were worth almost $130 million. Whereas in 1950 Hackensack Water pumped an average of 47 million gallons of water per day, by 1969 it pumped close to 100 million gallons a day.

Incorporating United Water Resources in 1983

Hackensack Water continued its steady growth through the 1970s. A severe drought adversely affected earnings in the early 1980s, but the company quickly rebounded. Following the lead of some electric utility companies, Hackensack Water decided to reorganize in 1983 as United Water Resources, Inc., in order to better develop its non-utility assets. The company was now able to move into water-quality testing services, offer management and meter-reading services to municipal water systems, and exploit its large land holdings. United Water owned 290 acres of excess Rockland County land with an assessed value of $1.8 million. In New Jersey it owned an additional 675 acres assessed at $7 million that were not needed for the water system.

Although United Water expanded under its new organization, in the early 1990s it took on a national presence. Under the leadership of Donald L. Correll, who became president in 1991, then a year later was named chief executive officer, United Water completed a major deal in 1994 when it acquired General Waterworks Corporation (GWC) for approximately $200 million in stock and cash. With its revenues doubled, United Water was now the second largest closely held water utility in the United States, boasting more than two million customers in 14 states. Perhaps of more importance, however, was the relationship United Water formed with the principal owner of GWC stock, Lyonnaise des Eaux-Dumez. As part of the transaction, the French water company giant received a 26 percent stake in United Water, becoming the largest outside shareholder.

A French Connection: 1994-2001

After World War II, France nationalized electricity and gas, forcing companies like Lyonnaise des Eaux to sell assets, the proceeds of which they invested in water, the one utility that remained open to them. Because its water industry consolidated rapidly, France produced large companies with considerable cash to spend on research and development&mdash well as a considerable appetite for growth. The U.S. market became a particularly attractive target. Not only was it highly fragmented, with some 55,000 community companies supplying water, the quality of water was considered poor by European standards. Chlorine had become too easy an answer for aging water systems in the United States. The amount of money that would have to be spent in the country to upgrade the infrastructure alone was staggering, some $330 billion over the course of the next 20 years. Furthermore, local governments were opting to turn over their water operations to private companies. United Water's French partner estimated that the annual revenue for private water management could reach $40 billion by 2015. The way the French chose to enter this enticing market was through forging relationships with U.S. companies such as GWC and United Water.

As drinking water standards became more stringent, and the Internal Revenue Service ruled that a city would not lose the tax-exempt status of its bonds if it placed its waterworks under private management, local governments were even more inclined to turn to outside water companies. United Water had already won large wastewater contracts in Indianapolis and Milwaukee when it teamed with its French partners in 1998 to win the contract to run Atlanta's waterworks, the largest water system in North America. The largest privately run system had been Jersey City, also a United Water contract, with its 80 million-gallons-a-day requirements. Atlanta's system, by contrast, had a capacity of 180 million gallons per day. The arrangement made sense for both parties. Atlanta saved $20 million a year (half of which went to United Water), an amount that it could then leverage into a billion dollars worth of borrowing. In addition, city employees would be taken off Atlanta's rolls and added to the management company. These types of contract operations were equally attractive to United Water. In 1992 they accounted for $10 million in revenues. By 1997 they grew to $50 million, and a year later doubled to approximately $100 million.

In the meantime, there was pressure on United Water's French partners to continue to grow, especially after the 1997 merger of Lyonnaise des Eaux and Compagnie de Suez, whose roots reach back to the building of the Suez Canal in 1858. However large Suez Lyonnaise des Eaux may have been, it was still only the world's second largest water company. Rival French firm Vivendia, with origins that also reached back to the mid-19th century, was even larger. After several years of working together, winning 35 water services contracts in 16 states, Suez Lyonnaise and United Water entered into talks in August 1999 to arrange a French purchase of the remaining shares of United Water stock. This step came on the heels of Suez Lyonnaise buying Calgon Corporation, a water-treatment company, for $425 million, and Nalco Chemical Co., a water-treatment chemicals firm, for $4.1 billion. The offer for United Water was for $35 a share in cash for a total price of $1.36 billion, plus the assumption of about $800 million in debt and other obligations.

A year would pass before the transaction was approved by regulators in New Jersey and New York. United Water, which would continue to operate as a separate entity, agreed to freeze rates for an extended period of time for its different customers, was forbidden from passing transaction costs on to customers, promised to avoid layoffs for at least one year, and signed off on a provision that required the company to give environmental groups and local governments the right of first refusal should it decide to sell any of its real estate holdings in watershed areas that drained into its reservoirs.

The future appeared promising for United Water and Suez Lyonnaise. The U.S. market remained highly fragmented, providing ample opportunities for growth through acquisition. Communities continued to turn to private firms to run their waterworks, although a number were hiring consultants to help them reinvent their operations. Upgrading a decaying U.S. infrastructure was another opportunity for major players including United Water. Indeed, the need for upgrading water facilities around the world was immense. In the end the prosperity of United Water and its French corporate parent could very well depend on the answer to one basic question: Who was going to pay for it all?

Principal Operating Units: United Water New Jersey; United Water New York; United Waterworks; United Properties Group Incorporated.

Principal Competitors: American Water Works Company, Inc.; Philadelphia Suburban; USFilter.

Chronology

• Key Dates:

• 1869: Hackensack Water Company is founded.
• 1874: Following an initial period of inactivity, company begins to offer service.
• 1889: Company is listed on New York Stock Exchange.
• 1900: Company acquires Spring Valley Water Works.
• 1957: Company opens de Forest Lake Reservoir in New York.
• 1983: Reorganization leads to United Water Resources, Inc.
• 1994: General Waterworks Corporation is acquired.
• 2001: Company becomes a subsidiary of Suez Lyonnaise des Eaux in a deal valued at $1.02 billion.