Another Acquisition by 3M - Analyst Blog

3M Company (MMM) has entered into an agreement to acquire Winterthur Technologies AG, a worldwide renowned provider of precision grinding technology, for approximately $448 million. Per share purchase value of Winterthur has been fixed at CHF 62.00 ($63.56) and has received the unanimous recommendation of Winterthur's board of directors.  

As per a binding duty, the Winterthur Chairman will allow 3M to tender his 14% shares in Winterthur. The offer, however, depends on tendering of 66.67% shares of Winterthur and fulfillment of some regular closing conditions.

The $14 billion abrasives market, in which Winterthur operates, is expected to expand at the rate of 4% annually. The grinding technologies from Winterthur are being used by customers in hard-to-grind precision applications in industrial, automotive, aircraft, and cutting tools.

The acquisition of Winterthur, expected to close in the first quarter of 2011, will broaden 3M's portfolio of industrial grinding and finishing solutions of its Abrasive Systems Division. The requirement for such solutions has been rising rapidly with the increasing demand for hard-to-grind and high-precision materials.

The purchase accounting adjustments and integration expenses to be recognized after the closure of the acquisition is expected to be slightly dilutive to earnings in the first 12 months, on a GAAP basis. Excluding these adjustments and expenses, 3M anticipates it to be somewhat accretive to earnings over the same period.

Recently, 3M Company completed the acquisition of Cogent Inc. for $10.50 per share. Thus, expanding its scope in $4 billion global biometrics market, which is expected to grow at a rate greater than 20% per annum.

Strong cash flow position and continuously expanding sales revenue provides 3M ample resources to expand through acquisition and innovation of new products. 3M is known worldwide for its innovations, with some of its well-known brands such as Nexcare, Post-it, Scotch, Scotch-Brite, and Scotchgard being the market leaders.

We believe that continued capital expenditure with new product launches should bolster its prospects across most end-markets. Acquisitions like Winterthur and Cogent helps the company to further expand its innovative expertise.

However, the company's growth objectives are largely dependent on timing and market acceptances of its new product offerings, including its ability to continually renew its pipeline of new offerings and bring those to the market at acceptable price points. Further, the results have been impacted by worldwide economic and capital market conditions.

Negative consumer sentiment is affecting the retail store traffic. On the corporate side, lower employment levels are negatively reducing office supply purchases in most companies.

3M Company together with its subsidiaries, operates as a diversified technology company with manufacturing operations spread over 60 countries worldwide. It has more than 35 business units organized into six segments: Consumer and Office, Display and Graphics, Electro and Communications, Healthcare, Industrial and Transportation, Safety, Security and Protection Services Business. Major competitors of 3M are Avery Dennison Corporation (AVY), EI DuPont de Nemours & Co. (DD) and Johnson & Johnson (JNJ).

We currently maintain our Neutral rating for the long term on 3M Company.

 
AVERY DENNISON (AVY): Free Stock Analysis Report
 
DU PONT (EI) DE (DD): Free Stock Analysis Report
 
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
 
3M CO (MMM): Free Stock Analysis Report
 
Zacks Investment Research