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A. O. Smith Corp. has signed an agreement to purchase a majority interest in the water treatment business of Tianlong Holding Co. Ltd. of Hong Kong. A newly formed company, A. O. Smith (Shanghai) Water Treatment Products Co. Ltd., will hold the assets of the business and supply reverse osmosis (RO) water filtration products to the China residential and commercial markets as well as export markets throughout the world. The new company will be a wholly owned foreign enterprise under Chinese law. A. O. Smith will pay approximately US$77 million for an 80% share of the new company.
The investment will be funded out of A. O. Smith's existing cash flow and credit facilities, and the company is expected to earn in excess of its cost of capital in the first full year under A. O. Smith's ownership. Within three years, the company expects to have a business that will generate more than $100 million in sales with double-digit operating profit. The transaction is expected to close in 4Q 2009.
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