3M Buying Winterthur Pushes 2010 Deals to $2 Billion

3M Co.’s agreement to purchase grinding-tools maker Winterthur Technologie AG brings the company’s spending on acquisitions this year to at least $2 billion, the highest in a decade.

Chief Executive Officer George Buckley has funneled money into acquisitions in 2010 as 3M adds to its health-care, security and industrial operations. The company has spent at least $6.47 billion since 2001, based on Bloomberg analysis of deals whose terms were disclosed. The previous high was $1.42 billion in 2007, data show.

The $448 million takeover of Switzerland’s Winterthur will enhance 3M’s position in the $14 billion market for abrasives, the company said today. The 13 percent premium is less than the average 15 percent that St. Paul, Minnesota-based 3M paid in deals this year, data show.

Winterthur “fits with the roots of 3M,” Jeff Windau, a St. Louis-based analyst with Edward Jones & Co., said in a telephone interview. “It gives them reach with these products into some other markets, especially internationally.”

Winterthur employs about 1,300 workers and posted sales in the first half of about $114 million, an increase of more than 30 percent from a year earlier, according to 3M’s statement. The purchase will “slightly” hurt earnings in the first 12 months after the deal’s completion, 3M said.

Abrasives Market

“Adding Winterthur enhances and extends our existing product line, enabling us to provide solutions for a broader range of industrial grinding and finishing needs,” Chris Holmes, general manager of 3M Abrasive Systems, said in the statement. 3M projects the abrasives market will grow more than 4 percent a year amid demand for hard-to-grind and high- precision materials.

Winterthur’s purchase price is about twice its yearly revenue, compared with a median multiple of 0.73 paid for machine tools and products companies in more than 150 deals worldwide in the past five years, analysis of Bloomberg data shows. The average premium was 22 percent.

The acquisition is the third-largest among machine-tools companies since 2005, and 3M said it should be completed in the first quarter. Winterthur Chairman Edgar Rappold has agreed to tender his 14 percent holding, and the offer is conditional upon a tendering of two-thirds of the shares, for which 3M offered 62 francs each.

“We view this transaction positively,” Mathew Christy, an analyst with Standard & Poor’s, said in a note to clients. It will “help bolster 3M’s leading position” in abrasives, he said.

Christy has a “hold” rating on the shares, while Windau has assigned a “buy” rating.

3M, whose purchases this year include fingerprint- identification systems maker Cogent Inc., fell 6 cents to $86.88 at 4:15 p.m. in New York Stock Exchange composite trading.

Winterthur, based in Zug, Switzerland, climbed 6.9 percent to 62 francs on the SIX Swiss Exchange. The shares have gained 52 percent this year.

To contact the reporters on this story: Will Daley in New York at wdaley2@bloomberg.net; Andrew Noel in London at anoel@bloomberg.net.

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

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