Why 3M Is Acquiring Scott Safety from Johnson Controls
3M widens its presence in personal safety industry
On March 16, 2017, 3M (MMM) announced that it had entered an agreement with Johnson Controls (JCI) to take over Scott Safety for a total enterprise value of $2.0 billion. The Scott Safety business reported revenues of $570 million in 2016. This acquisition will strengthen MMM’s safety and graphics segment, which reported revenues of $5.7 billion in 2016.
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Scott Safety products include self-contained breathing apparatus systems, gas and flame detection instruments, and other safety devices that help protect firefighters, industrial workers, police, military, homeland security forces, and rescue teams around the world from environmental hazards.
On a GAAP (or generally accepted accounting principles) basis, 3M expects earnings of $0.10 in the first 12 months after completing the acquisition. The transaction is expected to be complete in the second half of 2017.
MMM’s Frank Little, executive vice president of the safety and graphics business group, said, “Combining 3M’s products, brands and global capabilities in personal protective equipment with Scott Safety’s well-regarded safety products will provide a broader array of safety products and solutions, enhancing our relevance to customers worldwide.”
3M’s stock performance for the week
On March 17, 2017, MMM closed at $192.36, gaining 0.6% for the week. MMM stock traded 8.3% above its 100-day moving average price of $177.70, indicating an upward trend in the stock. Analysts expect MMM’s 12-month target price to be at $189.25. However, the stock is already trading above the indicated target price. On a year-to-date basis, the stock returned 7.7%.
The 14-day relative strength index (or RSI) of 72 indicates that the stock has moved temporarily into an overbought situation. An RSI of 70 and above indicates that the stock is overbought, while an RSI of 30 and below indicates that the stock is oversold.
The SPDR Dow Jones Industrial Average ETF (DIA), which holds 6.3% in MMM as of March 17, underperformed MMM with a return of -0.1% for the week to close at $208.86. The top holdings of the fund include Goldman Sachs (GS) and International Business Machines (IBM), which have weights of 8.1% and 5.8%, respectively.