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3M Buys Johnson Controls' Personal Safety Unit

- By Sydnee Gatewood

Industrial products manufacturer 3M Co. (MMM) announced on Thursday it is buying Scott Safety from Johnson Controls International (JCI) for about $2 billion, making it its second-largest acquisition ever.

Based in Monroe, North Carolina, Scott Safety manufactures respiratory protection systems, gas and flame detection instruments and other safety devices to protect firefighters, police officers, industrial workers, military units, homeland security forces and rescue teams from environmental hazards.

The unit will join 3M's Personal Safety Division, which provides respiratory, hearing and fall protection solutions, among others. According to Inge Thulin, 3M chairman, president and CEO, personal safety is one of the company's core growth businesses.

Frank Little, executive vice president at 3M Safety and Graphics Business Group, praised Scott Safety's strong product portfolio and dedicated employees, adding he feels it will be a great asset to the company.

"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," Little said.

Johnson Controls said the sale will help it concentrate on its two core businesses, building and energy. The proceeds will be used to pay part of its $4 billion in debt from its merger with Tyco International in September 2016.

Funded through a combination of cash and debt, 3M estimates the deal will have a dilutive impact on the company's GAAP earnings in the year following its close. Excluding adjustments and one-time expenses, however, the company expects it will be accretive to earnings over the same period.

The transaction is expected to close in the second half of 2017.

3M has a market cap of $113.4 billion; its shares were trading around $190.31 on Thursday with a price-earnings (P/E) ratio of 23.3, a forward P/E ratio of 22.1, a price-book (P/B) ratio of 11.03 and a price-sales (P/S) ratio of 3.9.

Among the gurus invested in 3M, First Eagle Investment (Trades, Portfolio) is the largest shareholder with 0.7% of its outstanding shares. In total, 16 gurus hold the stock.

Johnson Controls has a market cap of $39.2 billion; its shares were trading around $41.77 on Thursday with a forward P/E ratio of 15.8, a P/B ratio of 2 and a P/S ratio of 0.8.

Barrow, Hanley, Mewhinney & Strauss is the largest guru shareholder of Johnson Controls with 4.3% of its outstanding shares. A total of 20 gurus hold the stock.

Disclosure: I do not own any stocks mentioned in the article.

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This article first appeared on GuruFocus.