3M spending $550 million for Avery Dennison unit

3M Co. ended 2011 with roughly $4 billion in cash on its books. On Tuesday, the company announced how it will spend a chunk of it.

The Maplewood-based giant has agreed to pay $550 million for the office and consumer products division of California-based Avery Dennison Corp. The purchase, expected to close in the second half of this year, marries 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.

The deal is the latest in a series for 3M, which has spent about $3 billion on about two dozen acquisitions in the last two years. Last month it said it expects to spend $1 billion to $2 billion this year on acquisitions.

Its only other recent consumer and office acquisition was last year's purchase of GPI Group's home improvement product business. Other acquisitions in the last two years include Winterthur Technologies AG, a Swiss maker of precision grinding tools; Cogent Inc., a Pasadena manufacturer of fingerprint-identification systems; Attenti Holdings SA, an Israeli company that makes electronic tracking devices, and Arizant Inc., an Eden Prairie maker of blankets and fluid warming systems to prevent hypothermia in surgical patients.

3M has funded those deals in part by amassing a considerable supply of cash. Last month the company said it expected to finish 2011 with $4.3 billion to $4.5 billion in cash, up from $3.4 billion in 2010.

3M isn't the only company that slashed expenses during the recession in order to build up a sizable rainy day fund.

Cash reserves for nonfinancial companies in the Standard & Poor's 500 index are now about 51 percent bigger than in the third quarter of 2008, according to Capital IQ, a New York-based business research firm.

The two companies are longtime competitors in some parts of the office products business. 3M said the addition of the Avery Dennison business will increase its scale and global presence in the office, consumer and education markets. Jeff Windau, an analyst at Edward Jones in St. Louis, said profit margins on Avery Dennison's products currently are about half those of 3M.

"There's a real opportunity for 3M to improve margins [on Avery Dennison products] by putting them through 3M's global sales, marketing and distribution systems," Windau said.

During the first 12 months after closing, 3M said the acquisition is expected to lower earnings by about 6 cents a share, but excluding expenses to integrate the companies and other adjustments, the deal should boost earnings by 3 cents per share during the same period.

Wall Street, which often takes a dim view of large acquisitions, appeared to react favorably to the deal. The stock, increased about 2 percent, closing at $83.49 a share. That was slightly better than the 1.5 percent in the Dow Jones industrial average of which it is a component.

Staff writer Jim Buchta contributed to this report. Susan Feyder • 612-673-1723