Conservative · Stocks to Consider and Updates

3M to Buy Capital Safety

 MMM  Conservative choice 3M Co. (NYSE: MMM – $159.65) has reached a deal to buy Capital Safety from KKR & Co. for $1.8 billion in a bid to grow its personal safety segment. Capital Safety is a leading global provider of fall protection equipment, including harnesses, self-retracting lifelines and other products, under the brands Protecta and DBI-SALA. Such equipment is one of the fastest-growing safety categories within the global personal protective equipment industry. Capital also produces reflective materials for high-visibility apparel, protective clothing and eyewear, among others. The new business will become a division of 3M’s Personal Safety business, part of 3M’s Safety and Graphics Business Group, a global provider of respiratory and hearing protection solutions that help improve the safety and security of workers. Sales at Capital Safety were $430 million for the year ended March 31 and it has posted sales growth at a compound annual growth rate of 10% over the past four years. The deal includes the assumption of about $700 million in debt and 3M plans to finance the deal with existing cash. It is expected to close in the third quarter of 2015 and will likely hurt earnings by four cents a share in the first year after the transaction closes. However, excluding one-time expenses related to the acquisition, the purchase should add 12 cents a share in the same period. Shares of diversified manufacturer 3M has solid growth prospects with sales likely to grow 7%-8% per year to late decade and earnings above 8.5% annually. Moreover, I expect both the dividend distribution and the yield (currently 2.6%) to grow over time, as the company generates significant cash flow that can be returned to shareholders.

MMM

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