GIANT French companies are eyeing Britain's privatized water industry -- stock market valuation 12 billion ($19.4 billion) -- hoping to swallow large gulps of it.
One French conglomerate is already preparing a takeover bid that, if successful, would make it the supplier for 4 million residents in northeast England -- about one-tenth of the English market.
Last month, Lyonnaise des Eaux said it planned a takeover bid for Northumbrian Water, one of 10 water and sewerage companies in England and Wales that were sold by the government to the public in 1989.
The move by Lyonnaise is raising concerns among the ''Big 10'' British water companies about which one will be bought next, industry analysts say. Two other major French water conglomerates -- Companie Generale des Eaux (CGE) and Bouyagues -- are also reportedly licking their lips over purchasing British water suppliers.
The floodgates to French investment officially opened in December with the lapse of the ''golden share'' provision. Under the 1989 privatization, the British government retained a golden share in the water company stocks, thereby limiting foreign investment and blocking takeovers.
Even with the limitations, the French have been positioning themselves for a major stake in British water companies since privatization began.
In 1989, French companies began buying blocks of shares in English water companies, staying within the limits imposed by the government. Lyonnaise made a shrewd investment in a string of small water companies unprotected by the golden share provision, and later merged them to create North East Water.
Now Lyonnaise appears to ready to merge Northumbrian and North East Water and may be preparing northeast England as a likely bridgehead for further investment in British water services. A merger of the two companies would be ''an excellent fit in terms of geography and our own activities,'' diplomatically states Jacques Petry, president of Lyonnaise's international water division.
Philippe Brongniart, a Lyonnaise executive vice president, is more blunt: The merger would create ''a major industrial force in the region and one of the largest water companies in Britain.''
Northumbrian is advising shareholders they should reject any Lyonnaise overture.
But the French company has already supplied Britain's Monopolies and Mergers Commission (MMC) with details of its plans. They are reported to stress that a takeover would reduce water bills for households and industrial users. The MMC will decide whether the bid should be allowed to go ahead.
Lyonnaise says once it gets over the regulatory hurdles, it will announce a bidding price for Northumbrian. News that Lyonnaise, which controls 25 percent of the French market for water, was preparing a cash offer for Northumbrian, pushed the company's shares up from 1.28 to 8.70. Shares in other privatized water companies also shot up, with the market anticipating more French bids for British water stocks.
Northumbrian's profits are climbing. Analysts expect that dividend growth will continue into the year 2000.
Research by London stockbrokers Smith New Court suggests that some of the British companies could make good use of the funds likely to flow from conglomerates such as Lyonnaise and CGE. They are under pressure from the government regulator to invest heavily in infrastructure that was allowed to deteriorate when the industry was still in public ownership.
CGE and Lyonnaise are the world's No. 1 and No. 2 distributors of water, together supplying 30 million homes in France. Both firms are diversified well beyond the water industry, including holdings in electronics, construction, and environmental services.