Avery deal isn't dead, 3M says

Article by: DEE DEPASS , Star Tribune
Updated: September 5, 2012 - 9:52 PM

The company said it hopes to work to address the Justice Department's concerns about the $550 million deal.

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In this file photo made Tuesday, Jan. 26, 2010, the 3M Co. logo is seen on some of their products.

Photo: Matt Rourke, Associated Press

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A day after the U.S. Department of Justice said 3M Co.'s deal to buy Avery Dennison's office products division was dead, 3M insisted Wednesday that its quest to purchase the unit is far from over.

The Maplewood conglomerate said it remains in talks with California-based Avery Dennison Corp. despite withdrawing the paperwork necessary for regulatory approval -- and despite the threat of a federal lawsuit.

The government said a merger would have given 3M more than 80 percent of the market for sticky notes and labels, and subsequently indicated that it would sue if the companies pursued a deal. The Justice Department said Tuesday that the transaction had been canceled and that it welcomed the companies' decision to abandon the deal.

But 3M fired back in a statement late Tuesday saying that "3M and Avery Dennison have not terminated the purchase agreement." 3M spokeswoman Donna Fleming Runyon said Wednesday that the companies "are working together to address the DOJ's concerns and obtain regulatory approval" so a transaction can be completed.

Department officials did not return calls seeking comment Wednesday.

3M agreed in December to pay $550 million for the office and consumer products division of Avery Dennison. The purchase, which was expected to close in the second half of this year, would have married Avery Dennison's Hi-Liters, Marks-A-Lot pens, labels and other office products with some of 3M's best-known brands, including Scotch tape and Post-it Notes.

But the Justice Department inquiry found that 3M and Avery have dominated adjacent parts of the office-products business for many years. The companies are the world's largest label makers.

Analysts said on Wednesday that the deal would need to be dramatically restructured in order for the department to give the green light.

"Because DOJ's concern is that 3M is creating a monopoly position with these label lines, they could find a separate buyer for some of the deal, or leave some of it at Avery. Or they could sign some sort of agreement that 3M won't raise prices," Morningstar analyst Adam Fleck said.

They could also decide to simply walk away from the deal, he said.

"We will be exploring a number of options and seeing what we can do to move the deal forward," said Avery Dennison spokesman David Frail. He added that there is no timeframe to securing a revised deal but the hope is that a remedy maybe found "as soon as possible."

With alterations, some type of deal still could finalize before the end of the year, Fleck said.

Morningstar liked 3M's original acquisition plan because the price was fair and it would have given Avery cash and help it pay down debt. At the same time, it would have given 3M more marketing flexibility and higher margins because it no longer would have been advertising or discounting just to compete with Avery.

It would have been "a win-win," Fleck said. Going forward, many questions remain. "It really comes down to how they might appease the DOJ."

Dee DePass • 612-673-7725

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