Xylem XYL +2.88% was always an attractive, albeit expensive, stock with a strong position in an important, growing industry. The company then moved to buy Evoqua Water Technologies AQUA +2.71% . Now Xylem is a more attractive company with better growth prospects and a lower stock price.

Xylem (ticker: XYL), based in Rye Brook, New York, is a leading water technology company that makes pumps, valves, filters and meters for industrial and municipal customers. Sales in 2022 are expected to be $5.4 billion, which is significant for a clean water company. By comparison, Danaher’s DHR +0.62% ( DHR ) water business, which the company plans to spin off later this year, brings in about $5 billion as part of a huge conglomerate of industrial and medical companies with a market value of $200 billion.

Now Xylem plans to get even bigger. It is buying Pittsburgh-based Evoqua (AQUA) in a deal valuing the smaller water purification device maker at about $7.5 billion. The strategic rationale is simple and compelling. Evoqua is a major supplier of water and wastewater treatment systems with about $1.8 billion in sales in 2022, and it will bring expertise that Xylem doesn’t have.

Sounds good, but investors don’t like the idea. Xylem stock fell 8 percent the day the deal was announced and hasn’t moved since. Part of the drop is due to “arbitrage traders” who are making a profit by selling Xylem and buying Evoqua, betting that the spread between the two stocks, currently around $1.30, will disappear after the deal closes. But fundamentally minded investors also sold some shares, upset about the equity nature of the deal, which would dilute their stake in Xylem with the steep price that Xylem paid