Investors betting demand, mergers will lift water co's

By Joshua Brown

NEW YORK, July 10 (Reuters) - Water industry investors are betting rising global demand for greater volumes of high quality water and the likelihood of takeovers will help lift shares in water reuse and purification companies.

"We need pure water to accommodate all of our manufacturing processes and drinking needs more than we ever did before, so the companies that are in a position to make high quality water and to use it and reuse it are the ones that will be the biggest winners," said Neil Berlant, portfolio manager for PFW Water Fund.

Interest in the sector was highlighted by Dow Chemical Co's (DOW.N: Quote, Profile, Research) $15.3 billion bid to buy specialty chemicals maker Rohm & Haas (ROH.N: Quote, Profile, Research) on Thursday. That takeover would expand Dow's water business by linking it to Rohm & Haas' long-standing partnership with water treatment company Nalco Co (NLC.N: Quote, Profile, Research).

Another company in this space is purification technology provider Calgon Carbon Corp (CCC.N: Quote, Profile, Research), a principal producer of the most essential element of water purification -- activated carbon.

Shares of the Calgon leapt 10 percent to $15.47 per share on the New York Stock Exchange on Thursday, while Nalco climbed 2.1 percent to $20.36 per share.

Calgon stock had fallen about 24 percent in recent weeks before recovering ground on the Dow Chemical news.

Despite its volatile performance and recent fall from its 12-month closing high of $19.88 per share set June 16, Berlant sees potential for Calgon both fundamentally and as an acquisition target.

"If the industry continues to consolidate with ever larger companies entering the picture ... the probability that Calgon could be viewed as an acquisition target keeps rising and rising," said Berlant.