Bloomberg News

3M Rises Highest Since August on $550 Million Acquisition

January 03, 2012

(Updates with closing share prices in fifth paragraph.)

Jan. 3 (Bloomberg) -- 3M Co. rose the highest in New York trading since August after agreeing to buy Avery Dennison Corp.’s office-products business for $550 million.

The cash transaction will increase earnings by 3 cents a share, excluding accounting adjustments and integration costs, in the first 12 months after closing, 3M said today in a statement. Under generally accepted accounting principles, earnings will be reduced about 6 cents a share.

The acquisition will add products such as Marks-A-Lot pens to a 3M lineup of office goods that includes Post-it Notes and Scotch tape. 3M, based in St. Paul, Minnesota, said sales at the Avery Dennison unit were probably about $765 million last year, with earnings of $95 million before interest, taxes, depreciation and amortization.

“We consider this to be a nice strategic acquisition, but likely too small to move the needle much for 3M,” Deane Dray, an analyst with Citigroup Inc. in New York, wrote in a note today. “Valuation looks reasonable to us.”

3M climbed 2.2 percent to $83.49 at 4:15 p.m. in New York, while Avery Dennison gained 2.2 percent to $29.31. Both stocks reached their highest closing price since Aug. 3.

Avery’s label business -- the company is the market leader in a segment where 3M has been second -- is the “coveted asset” in the deal, Dray said. The transaction will boost earnings as operating margins of 10 percent for Avery’s office and consumer products unit are brought up to 3M’s level of 20 percent, he said.

Closing Expected

The deal should close in the second half of the year, 3M said. The company is targeting acquisitions of $1 billion to $2 billion this year, Dray said.

The transaction is 3M’s biggest since it bought fingerprint- identification systems maker Cogent Inc. in 2010, a year in which Chief Executive Officer George Buckley spent more than $2 billion, according to data compiled by Bloomberg.

In the first nine months of last year, 3M’s consumer products unit accounted for 14 percent of the company’s sales, according to 3M’s latest quarterly financial report.

Avery Dennison, based in Pasadena, California, said it would use proceeds from the sale to reduce debt, make pension contributions and repurchase shares.

--Editors: Jeffrey Tannenbaum, John Lear

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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