Here’s How 3M and Honeywell Deal Are Dealing With Economic Woes
Continued economic worries have left their mark on large manufacturers; because of increased financial pressures, both 3M (NYSE:MMM) and Honeywell (NYSE:HON) have signed takeover deals in recent weeks to further diversify their catalog of industrial products.
3M announced its intentions to buy industrial ceramics company, Ceradyne (NASDAQ:CRDN), for $860 million on Friday. For the manufacturer of products ranging from Post-It notes to films used in television screens, this will be the largest acquisition since Inge Thulin became the company’s chief executive officer in February.
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Shares in the company rose 1.5 percent following the news, even though some analysts thought the deal was not a bargain. 3M paid $35 per share for Ceradyne, which closed at $35.04 on Friday.
“The valuation is pretty full on this one,” said Edward Jones analyst Jeff Windau to Reuters. “But it does fit nicely with 3M and what their fundamental business is, and that is the materials sector. It makes a lot of sense for them.”
The company also has another large deal planned, a $550 million acquisition of Avery-Dennison (NYSE:AVY), if U.S. regulators lift their objections. For analysts, 3M’s current strategy of focusing on larger deals, rather than smaller takeovers, may be a more effective way to increase the size of the company. The acquisition of Ceradyne will not only increase its presence in the aerospace sector, but add $476.7 billion to 3M’s predicted revenue of $30 billion this year.
For its part, Honeywell plans to spend $525 million in cash for a 70 percent stake in privately held Thomas Russell, a company which makes equipment for natural gas production. Big U.S. manufacturers, like General Electric (NYSE:GE), have increased their presence in that sector recently, due to the surge in natural gas production in the United States. The company has the right to buy the remaining 30 percent of Thomas Russell at a price linked to the business’s operating income.
Honeywell expects that Thomas Russell will generate revenue of approximately $425 million for 2012, while analysts predict revenue of $38.11 billion from Honeywell.
The deals have progressed despite the numerous worries faced by both 3M and Honeywell, among them concerns that the U.S fiscal cliff could force year-end spending cuts by the federal government and concerns over slow growth in Asia. In fact, U.S. industrial companies as a group have increased their rate of deal-making in 2012. The chief executives of both Honeywell and 3M have said separately in recent weeks that the concerns for the global economy have made acquisition negotiations simpler.
“When times are bad and everybody is uncertain about the future, that is the right time to buy,” Honeywell CEO Dave Cote said last month at an investor conference in Boston.