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3M Scraps Avery Unit Deal as Antitrust Regulators Balk

3M Co. (MMM) scrapped an agreement to buy Avery Dennison (AVY) Corp.’s office products business, a $550 million deal the U.S. Justice Department opposed because of antitrust concerns.

The takeover would have given St. Paul, Minnesota-based 3M more than 80 percent of the U.S. market for labels and sticky notes, the Justice Department said in September. Today’s announcement follows a plan by 3M and Avery Dennison last month to “explore options” to respond to the department’s concerns and win regulatory approvals.

“While we are disappointed with this turn of events, we remain focused, as always, on investing in product innovation,” Jesse Singh, vice president and general manager of 3M’s Stationery and Office Supplies Division, said in a statement.

3M had planned to complete the purchase, announced Jan. 3, in the second half of this year. Pasadena, California-based Avery said it will continue to search for a buyer for the unit, which sells labels, binders, filing products and writing instruments with brands such as Hi-Liters and Marks-A-Lot.

The Justice Department’s examination of the deal 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.

The two companies are the largest label makers in the world, according to Deane Dray, an analyst at Citigroup Inc. in New York. Dray last month said the acquisition was small for 3M, adding only 3 cents to his earnings-per-share forecast of $6.75 for next year.

Product Innovation

Avery Dennison Chief Executive Officer Dean Scarborough told analysts on Sept. 5 he disagreed with the Justice Department’s findings that the purchase would hurt consumers, saying the combination would allow for more spending on research to make the products more innovative and competitive.

Avery Dennison fell 7.8 percent to $29 at 5:29 p.m. in New York in late trading after the announcement. Through the close of regular trading, Avery had gained 10 percent since the day before the agreement was announced, while 3M had climbed 15 percent to $93.78.

The office-products deal’s collapse is the third major development at 3M this week.

On Oct. 1, the manufacturer agreed to pay $860 million to buy Ceradyne, a Costa Mesa, California-based maker of ceramics for the energy, aerospace and defense industries as CEO Inge Thulin tries to augment growth that has been hampered by European weakness and a China slowdown.

Thulin announced a reorganization of 3M today, reducing the number of units to five from six. He also shuffled some businesses and executives among the units “to increase relevance to our customers,” according to a statement.

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

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

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