Bloomberg News

3M Drops Avery Dennison Unit Buyout Amid Antitrust Worry

September 05, 2012

3M Co. (MMM:US) dropped its $550 million takeover of Avery Dennison Corp. (AVY:US)’s office-products unit after the U.S. Justice Department said it would sue if the companies didn’t abandon the transaction.

The Justice Department said in an e-mailed statement that the merger would have given 3M more than 80 percent of the U.S. market for labels and sticky notes. The department’s investigation found that 3M and Avery have dominated adjacent parts of the office products business for many years, with Avery making labels and 3M selling sticky notes under its Post-it brand.

“We welcome the companies’ decision to abandon this deal, which raised competitive concerns in the sale of labels and sticky notes,” Joseph Wayland, acting assistant attorney general for the Antitrust Division, said in a statement. “As a result of the abandonment of this transaction, American customers will continue to receive the benefits of competition including lower prices and greater innovation in these basic office supplies.”

3M, which announced the acquisition more than eight months ago, had planned to complete the purchase in the second half of this year.

Donna Fleming Runyon, a spokeswoman for 3M, and David Frail, a spokesman for Avery, didn’t immediately return phone and e-mail messages seeking comment on the Justice Department’s statement.

‘Overlap’

The deal would have combined the two largest label makers in the world, according to Deane Dray, an analyst at Citigroup Inc. in New York.

“Obviously they had overlap, I would’ve thought that they would’ve thought that through on both sides more fully,” said Ghansham Panjabi, an analyst at Robert W. Baird & Co. in Roseland, New Jersey.

Avery probably will bring the business “back into continuing operations and evaluate it some other time” rather than seek another buyer right away, he said.

Avery, based in Pasadena, California, fell 5.2 percent to $29.60 yesterday at the New York close after earlier dropping as much as 7.4 percent. 3M, based in St. Paul, Minnesota, declined 1 percent to $91.68.

Antitrust Enforcement

The Justice Department has stepped up antitrust enforcement under the Obama administration, suing to block transactions, causing companies to walk away from deals that it determined would hurt competition, and obtaining conditions to ensure mergers it approves don’t have anticompetitive effects.

AT&T Inc. dropped its proposed $39 billion purchase of T- Mobile USA Inc. in December after the Justice Department filed a lawsuit seeking to block the merger.

In November, the antitrust division won a lawsuit against H&R Block Inc.’s proposed acquisition of closely held 2SS Holdings Inc., the maker of TaxAct products, when a federal judge ruled the transaction would diminish competition in the tax-preparation market.

Nasdaq OMX Group Inc. and Intercontinental Exchange Inc. abandoned an unsolicited bid for NYSE Euronext in May 2011, after the department threatened to sue to block the tie-up, which would have created a monopoly on corporate listings.

The H&R Block case marked the first time in seven years that the Justice Department had gone to trial since failing in 2004 to stop Oracle Corp.’s $8.4 billion purchase of PeopleSoft Inc.

Modified Deals

Deals forged with constraints extracted by the department under former antitrust division chief Christine Varney include Google Inc.’s $700 million purchase of ITA Software Inc. in April 2011, Comcast Corp.’s January 2011 purchase of NBC Universal, and Ticketmaster Entertainment Inc.’s merger with Live Nation Inc. in January 2010.

The Avery transaction would have been 3M’s biggest since the company paid $662.4 million to buy fingerprint- identification systems maker Cogent Inc. in 2010. Buying the division would have allowed 3M to add products such as Marks-A- Lot pens to a lineup of office goods that includes Scotch tape.

3M became the second-biggest global player in the label market behind Avery Dennison after it completed the 2010 purchase of a majority stake in Japanese label maker A-One’s consumer and office label business, according to Citigroup’s Dray. A-One is the top office and consumer label brand in Asia, he said.

The proposed transaction is small for 3M, which makes products (MMM:US) ranging from dental braces to commercial sealants, and its failure won’t “move the needle” in a negative way for the $63.4 billion company, Dray said yesterday in a phone interview.

“It’s not that material to 3M,” he said. “The collection of products are very good quality, but they were more line extensions and gap-fillers rather than a pivotal part of the business model.”

To contact the reporters on this story: Will Robinson in New York at wrobinson11@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net; Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • MMM
    (3M Co)
    • $136.65 USD
    • -1.34
    • -0.98%
  • AVY
    (Avery Dennison Corp)
    • $49.01 USD
    • -0.45
    • -0.92%
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