3M Carries On Its Portfolio Management

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MMM: 3M Company logo
MMM
3M Company

3M (NYSE:MMM) has announced its plans to sell almost all of its Communication Markets Division to Corning Incorporated for $900 million. This business, which has annual global sales of ~$400 million, provides “optical fiber and copper passive connectivity solutions to the telecommunications industry.” If the deal receives the necessary approvals, it will close sometime next year, and the Austin-based unit’s 500 workers will become Corning employees. 3M expects to realize a gain of 40 cents per share as a result of this transaction, net of actions related to the divestiture. While this unit was no longer seen as core to 3M’s business, it will become a part of Corning’s optical communications business, which accounted for over a third of the company’s sales in the recently reported third quarter.

We have a $210 price estimate for 3M, which is below the current market price.

Key Lever Of 3M’s Growth

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3M has been very active on the M&A front in recent years, having made significant acquisitions such as Capital Safety, Polypore’s Separations Media business, and Ivera. The company has also made an effort to slim down. Some of the big-ticket sales include that of its Static Control and Library Systems businesses, and Faab Fabricauto. Since 2012 to early 2016, 3M has gone from six sectors to five business groups, and has pruned its businesses or divisions from 40 to 26, thereby improving customer relevance, productivity, and speed, through a leaner operating structure. This has resulted in SG&A savings of around $250 million.

The company intends to carry on this strategy, and in this regard, is investing ~$100 million in commercialization this year. On the basis of this, it expects 50 to 100 basis points of additional growth. This will be a result of expanding the company’s presence and garnering additional market share. Portfolio management will also help to optimize its footprint, and in terms of this, the company is targeting $125 million to $175 million in additional operational savings by 2020.

Portfolio Actions Taken In Its Transportation Safety Division

3M has been quite active on the M&A front since the beginning of this year, and has undertaken a number of divestitures in its Transportation Safety division with an intent of improving its portfolio.

1. Sale of its Identity Management Business- In May, 3M completed the sale of its identity management business, within the Traffic Safety and Security Division, to Gemalto, the world leader in digital security, for $850 million. There are three components included in the business which will become a part of Gemalto’s Government Programs business – the biometric offerings that 3M got following the Cogent acquisition, a document reader line, and 3M’s secure materials business. On the whole, these three areas generate $215 million annually, and the yearly profit from the operations stands at $58 million. The division’s products are used by governments, law enforcement, border control, and civil identification bodies worldwide.

2. Sale of its Tolling and Automated License/Number Plate Recognition Business- Towards the end of June, 3M announced the completion of the sale of this business to Neology Inc., a provider of integrated solutions for tolling, electronic vehicle registration, and public safety applications. 3M’s business, meanwhile, supplies tolling and license plate number recognition solutions, such as RFID readers and tags, automatic vehicle classification systems, lane controller and host software, mobile and fixed cameras. The business has annual sales of approximately $40 million, and is a growing business. However, the best way forward for the division was considered to be as part of a company focused on this market.

3. Sale of its Electronic Monitoring Business- In early October, 3M announced that it had completed the sale of this business to Apax Partners, a private equity advisory firm, for $200 million. The business, which has annual sales of $95 million, provides electronic monitoring technologies to numerous correctional and law enforcement agencies around the world.

According to John Riccardi, vice president and general manager, Transportation Safety Division, the company is focusing on the “rapidly changing trends in transportation safety and mobility, which includes connected roadways of the future.” This would entail safe, wireless communications among vehicles, the infrastructure, and personal communications devices (mobile phones). Such a technology has the potential to make traveling safer, smarter, and greener.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions in the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for 3M.
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