By Nick Zieminski
(Reuters) - 3M Co
The deal marks the latest move toward consolidation of the office supply industry, which has been hurt by high U.S. unemployment, private label competition and Asian imports.
"The structurally-challenged office product business ... is in need of considerable consolidation to boost profitability," Baird Equity research analysts said in a research note. They said the deal's valuation was comparable to November's deal in which MeadWestvaco Corp
3M, a diversified manufacturer whose products include Post-It notes and Scotch tape, said purchase accounting and acquisition costs would reduce earnings by about 6 cents a share in the first 12 months after the deal closes, expected in the second half of 2012. Excluding one-time items, the deal would boost earnings by 3 cents a share in the same period.
3M's $4.2 billion consumer and office division represents about 15 percent of its revenue. Through nine months of 2011, the unit posted a $661 million operating profit in the segment, down slightly compared to a year ago despite a 10 percent sales increase.
Avery's office and consumer products business, with estimated 2011 sales of $765 million, would increase 3M's annual sales by about 2 percent. The Avery division's sales were higher in 2010, at about $815 million, according to a company presentation.
The Brea, California-based division employs about 3,000 people and also makes filing and presentation products. It will expand 3M's office supplies division that makes packing tape, bubble wrap, glue sticks, projectors and other products, in addition to the iconic Post-It notes and Scotch tape.
Avery said it plans to use proceeds from the sale to cut debt, contribute to pensions and buy back shares. Pro-forma sales in 2011, excluding the office products business, are expected to be about $6 billion, it said. J.P. Morgan Securities LLC advised Avery on the transaction.
When Avery reported third-quarter results in October, it posted lower sales and margins in the office and consumer products business, citing weak market demand and higher raw materials costs. It said overall weak demand in its businesses would likely continue in the fourth quarter.
Shares of Avery were up 3.5 percent at $29.69 in morning trading, while 3M stock -- part of the Dow Jones industrial average -- was up 2.5 percent to $83.80. Newell Rubbermaid
(Reporting by Nick Zieminski in New York and Megha Mandavia in Bangalore; Editing by Supriya Kurane, John Wallace, Dave Zimmerman)