Avery Dennison Corp.’s plan to sell its office products division to focus more on its core labeling and packaging businesses is proving to be tough to execute.
Late last month, the Department of Justice rejected the Pasadena label and packaging company’s proposed $550 million sale of the office and consumer products division to 3M Co., the Minneapolis-based manufacturing conglomerate, claiming the sale would give 3M 80 percent dominance in the label and sticky notes business.
Executives at Avery Dennison, along with their counterparts at 3M, said last week that they intend to reconstitute their deal to satisfy the Justice Department’s concerns, but that could take some time. And trying to meet those concerns might lead 3M to walk away. In that case, Avery Dennison would have to hunt for another buyer.
“Completion of the deal is now uncertain,” said Jeff Windau, an industrials analyst with Edward Jones in St. Louis who follows 3M.
Avery Dennison’s office and consumer products division sells binders, note pads, dividers and other items. It also makes a line of Martha Stewart-endorsed products that sell in Staples stores, including “pantry pockets” that can hang in kitchen cupboards.
Avery Dennison had launched the unit 30 years ago as computers became commonly used at work and home. The company saw a growing market for printable media related to that revolution.
According to Ghansham Panjabi, analyst with Robert W. Baird & Co. in New York, the unit’s profitability has been steadily sliding over the last decade. One reason: The office supply store industry has undergone tremendous consolidation into a handful of superstore chains, chiefly Staples Inc. of Framingham, Mass.; Office Max Inc. of Naperville, Ill.; and Office Depot Inc. of Boca Raton, Fla. That leaves fewer outlets for suppliers such as Avery Dennison to sell to.
Also, during the last five years, white-collar office employment has declined, meaning fewer end customers for Avery Dennison’s office products.
“With all this consolidation and shrinking customer base, growth in office products has come under pressure,” Panjabi said.
The office and consumer products division had sales of roughly $760 million last year, about 13 percent of the company’s $6.03 billion in 2011 revenue. But Chief Executive Dean Scarborough said the company decided to sacrifice those sales in order to focus on its core labeling and packaging businesses.
“Our focus is on returning more cash to shareholders. We think we’ve got two strong businesses, both of which throw off good free cash flow,” Scarborough told analysts in an earnings conference call in January, four weeks after the sale to 3M was announced.
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Label Maker Still Adheres To Plan to Sell Off Division
- Label Maker Sticks With Plan to Sell Divisions
- Avery Finds New Buyer for Consumer Products Unit
- Feds May Block Sale of Avery Dennison Unit
- Avery Dennison and 3M Give Up on Sale of Avery Unit
- 3M Seeks to Save Avery Unit Deal
- Avery Dennison to Sell Unit to 3M
- A Case Where Justice Was Blind