* Agrees cash-and-shares deal for Malcolm Pirnie
* Arcadis to set up a separate water services division
* Arcadis says no reason to change 10 percent margin target
* Shares up 2.9 pct, outperforming Amsterdam midcap index
(Adds CEO, analyst comment, shares)
By Gilbert Kreijger
AMSTERDAM, June 25 (Reuters) - Dutch engineering consultancy Arcadis will buy U.S. rival Malcolm Pirnie for $222 million in cash and shares, boosting its position in the international water services market in a deal welcomed by investors.
Arcadis said on Thursday it would incorporate unlisted Malcolm Pirnie, which provides environmental engineering and consulting services, in a new water services division, and the deal would immediately boost its operating earnings per share, excluding amortisation.
"Clean water availability and water quality are increasingly important issues. In order to capitalise on the expected strong growth in this market, water will become a separate business line within Arcadis," the company's Chief Executive Harrie Noy told reporters.
Noy said the company did not see any reason to change its target for a 10 percent operating (EBITA) margin in 2009, but he also declined to say whether the company would meet it.
Arcadis said it would fund the deal by issuing 5.74 million new shares, worth 61.68 million euros ($86.8 million) based on Wednesday's closing price, plus $135 million in cash financed by a new credit line.
Holders of close to 50 percent of Malcolm's Pirnie's equity had given their backing to the deal, it said.
Reuters calculations valued the transaction at $221.8 million, compared with Arcadis's market value of about 670 million euros ($942.8 million). The company has about 61.9 million shares outstanding, data from market regulator AFM showed.
Arcadis shares, which will be issued to current Malcolm Pirnie owners and key employees, were up 2.9 percent at 11.09 euros by 0844 GMT, outperforming the Amsterdam midcap index, which was up 2.5 percent.
"We expect that Arcadis ... will be able to bring Pirnie's margins in line with company margins through synergies, thereby creating value," SNS Securities analysts said in a note.
The firm's track record on acquisitions was excellent, they said.
Noy said in a statement the environmental services market continues to slow because industrial clients are cutting spending, but margins are holding up, while the construction market is still under pressure, particularly in Britain.
Malcolm Pirnie had 2008 sales of $392 million and a profitability margin close to Arcadis's overall operating margin target of 10 percent, said Arcadis, which had 2008 sales of 1.74 billion euros and made a net profit of 57.3 million euros.
The deal is subject to approval by Malcolm Pirnie's shareholders as well as other conditions. Owners of 48 percent of the company's equity have provided irrevocable support for the merger, which Arcadis expects to complete next month. ($1=.7106 Euro) (Editing by John Stonestreet and Rupert Winchester)