3M to Buy Residual Stake in Japanese Venture for $885 Million

3M Company (MMM) is set to acquire the remaining 25% stake of Sumitomo 3M Ltd. for ¥90 billion (approximately $885 million). The transaction, expected to conclude on Sep 1, 2014, will make 3M a 100% stake owner in Sumitomo 3M Ltd.

Sumitomo 3M Ltd. was established in 1961 as a joint venture between 3M, Sumitomo Electric and NEC Corp. In 2003, 3M acquired NEC's stake, thereby obtaining 75% stake in the venture. The present cash buyout will take its stake to 100%, allowing the conglomerate to take complete control over one of its most successful subsidiaries.

Osaka-based Sumitomo Electric is a leading electric wire and optical cable maker. The company, after incorporating the impact of its sale to 3M, increased the group net profit outlook for the current fiscal year to ¥111 billion from ¥70 billion, as reported by The Wall Street Journal.

3M expects the acquisition to be accretive to its earnings by approximately 8 cents per share, during the 12 months immediately following the closing of the transaction. The strategic investment will allow 3M to build on its lucrative, stable presence in Japan as it deploys additional capital for its subsidiary.

According to Moody's Investors Service, a leading credit rating agency, 3M’s cash purchase of a 25% stake in Sumitomo 3M will be neutral to its credit ratings and outlook. The conglomerate’s current Aa2 rating, with a stable outlook, indicates high credit quality.

3M currently has a Zacks Rank #3 (Hold). Other better-ranked stocks include Noble Group Ltd. (NOBGY), Macquarie Infrastructure Company LLC (MIC) and Hutchison Whampoa Limited (HUWHY). While Noble Group sports a Zacks Rank #1 (Strong Buy), both Macquarie and Hutchison Whampoa carry a Zacks Rank #2 (Buy).

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