3M (NYSE:MMM) is set to broaden its ceramic platform with the recently announced acquisition of Ceradyne Inc. (NASDAQ:CRDN).  The deal will provide 3M with the technology to develop and produce advanced ceramics that are used in several applications across automotive, oil and gas, solar, industrial, electronics and defense industries. The business will add to the company’s top-line growth over the coming years, creating significant investor value.
We currently have a stock price estimate of $97.12 for 3M, approximately 5% above its current market price.
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3M will acquire all outstanding shares of Ceradyne at $35 per share, a premium of approximately 42% over their last trading price of $24.63 on September 28, prior to the announcement of the acquisition.  The offer values the company at $860 million, making Ceradyne one of the larger acquisitions by 3M. 
In the recent past, 3M has focused on acquiring relatively smaller companies that offer significant growth potential. For example, last month it completed the acquisition of Federal Signal Technologies Group (FSTech) for $110 million. FSTech, an electronic tolling company, offers growth through increasing global infrastructure spending, particularly in emerging economies.  3M can leverage its global reach to scale acquired businesses across geographies and its R&D to create novel applications for these businesses across industries.
Ceradyne currently has operations in the U.S., Canada, China and Germany, and it posted revenues of $500 million in 2011. 3M will integrate the company’s operations in its Energy and Advanced Materials division within its industrial and transportation business.
3M anticipates to utilize its R&D and diversified presence across industries to increase the applications of existing Ceradyne technologies, and its global reach to scale up Ceradyne operations. On a GAAP basis, 3M estimates the acquisition to dilute earnings by $0.05 for the first 12 months after the completion of the acquisition. Excluding the integration expenses, 3M estimates the acquisition to add $0.01 over the same period. And, over the long term, the deal is expected to create significant investor value.Notes: