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3M to Divest Ballistic-Protection Business to Avon Rubber

Zacks Equity Research

3M Company MMM recently announced that it has inked an agreement with Avon Rubber p.l.c. to divest its advanced ballistic-protection business. The $91 million deal is subject to customary closing conditions and regulatory approvals, and is projected to close late this year or in early 2020. Notably, a maximum of $25 million of additional contingent consideration is payable, based on the outcome of pending tenders.

Avon Rubber is engaged in providing advanced chemical, biological, radiological and nuclear respiratory protection systems to law enforcement, military and fire customers. This company is based in Melksham, Wiltshire, England.

Details of the Divestment Deal

As part of 3M’s advanced materials business, the ballistic-protection business is a leading provider of armour solutions, including helmets and body armour to government and law enforcement customers. As a matter of fact, the divestment of the business will enable 3M to focus more on its other businesses within the Advanced Materials Division —  part of its Transportation & Electronics segment.

As noted by the company, about 280 employees, employed in the company’s ballistic-protection business are likely to join Avon Rubber, as a result of the divestment.

Other Inorganic Moves

Some other notable inorganic activities completed by the company are the sale of its gas and flame detection business to Teledyne Technologies Incorporated TDY this month. This apart, the company divested its communication markets business in 2018 while completed the buyout of the technology business of M*Modal in February 2019. In addition, in May 2019, the company entered into a definitive agreement to acquire Acelity Inc. and its KCI subsidiaries. The deal is expected to be completed in the second half of 2019.

Our Take

3M intends to become more competent on the back of product portfolio solidification. Also, the company’s value model that comprises four priorities — Portfolio, Innovation, Transformation, and People and Culture — will help strengthen margins.

However, rising cost of sales has been a major cause of concern for 3M over the last few quarters. On a year-over-year basis, the company's cost of sales escalated 1.7% and 2% in the first quarter and second quarter of 2019, respectively. Inflation in the prices of raw materials had primarily resulted in the increase.


 

3M currently carries a Zacks Rank #3 (Hold). In the past month, the company has lost 3.3%, narrower than the industry’s decline of 5%.

Stocks to Consider

A couple of better-ranked stocks in the same space are Federal Signal Corporation FSS and Carlisle Companies Incorporated CSL. While Federal Signal sports a Zacks Rank #1 (Strong Buy), Carlisle carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Signal delivered average earnings surprise of 16.48% in the trailing four quarters.

Carlisle pulled off average positive earnings surprise of 17.16% in the trailing four quarters.

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