Replies to post #1418 on The Rising Influence of Rising Affluence

[DewDiligence]

3M Acquires COGT for $430M Net

http://www.reuters.com/article/idCNN3016689720100830

›Mon Aug 30, 2010 9:00am EDT

NEW YORK, Aug 30 (Reuters) - Diversified U.S. manufacturer 3M Co (MMM) on Monday said it agreed to buy Cogent Inc (COGT) for more than $900 million, paying a nearly 18 percent premium for the biometric identification systems company.

3M said it would pay $10.50 a share to buy Cogent, whose shares closed at $8.915 on the Nasdaq stock market on Friday. Cogent shares jumped to $10.73 in premarket trading.

Net of cash acquired in the deal, 3M said it was paying $430 million for Cogent. The transaction is expected to close during the fourth quarter of the year.

3M said the deal was worth $943 million, but a calculation based on 88.8 million Cogent shares outstanding put the value at $932 million. A 3M spokeswoman said she was not immediately able to explain the slight discrepancy.

Cogent, based in Pasadena, California, makes automated fingerprint and palm-print identification systems that allow its customers to capture fingerprint and palm-print images electronically, encode prints into searchable files, and compare sets of prints.

Cogent had about $130 million in revenue in 2009. 3M expects the purchase to be dilutive to earnings by 9 to 10 cents per share over the first 12 months after closing. Excluding purchase accounting adjustments and integration costs, it expects the deal to add to earnings by 1 to 2 cents per share.

J.P. Morgan advised 3M, while Credit Suisse and Goldman Sachs acted as financial advisers to Cogent Systems.

TARGETING LAW ENFORCERS

3M makes systems for creating and validating documents like passports, as well as products used at national borders. It said the deal will help it expand in the market for law enforcement systems, and estimates the $4 billion biometric market will grow by 20 percent a year.

3M Chief Executive George Buckley said last week that the company could spend about $2 billion on acquisitions in 2010, double its previous estimate for the year.

A series of deals for mid-tier defense companies has lifted valuations of companies that provide the niche surveillance and intelligence technologies.

It is an area where large defense contractors like Boeing (BA) have been stepping up investment. As the United States strengthens its focus on national security, Boeing's peers Lockheed Martin Corp (LMT), Northrop Grumman (NOC), General Dynamics (GD), Goodrich Corp (GR) and BAE Systems Plc (BAES.L), are eyeing a bigger slice of the surveillance and intelligence market.

Cogent competitor L-1 Identity Systems (ID), a maker of fingerprint and iris recognition devices, said last week it was close to announcing a deal, which analysts peg at around $1 billion. L-1 put itself up for sale in March.‹

[DewDiligence]

3M Acquires Israeli People-Tracking Firm, Attenti

http://online.wsj.com/article/SB10001424052748703467004575463303704487586.html

›September 1, 2010
By MATT JARZEMSKY

Conglomerate 3M Co. agreed to acquire Attenti Holdings SA, an Israeli maker of people-tracking technology, from an investor group led by private-equity firm Francisco Partners.

The planned acquisition, valued at $230 million, is 3M's second high-tech-security deal this week [the other is the buyout of COGT: #msg-53865254].

Attenti makes remote monitoring technology to track people awaiting trial or on probation, as well as in elder-care facilities to improve patients' safety. Formerly known as Dmatek, it was acquired by the Francisco-led group in March 2009 for £52.9 million, or $81.8 million.

3M, based in St. Paul, Minn., said the acquisition would slightly increase earnings excluding deal-related costs in the first year after closing, expected in the fourth quarter. Attenti, with 340 employees, expects revenue of about $100 million this year.

The announcement comes at the end of a busy August for dealmaking, in which 3M already has been active. The industrial conglomerate, whose diverse products include Post-It notes, furnace filters and power lines, said Monday that it agreed to acquire Cogent Inc., a maker of fingerprint-identification systems, in a deal valued at $943 million.

3M has experienced stronger sales lately, partly fueled by new products and growth in emerging markets. In July, the company said second-quarter revenue rose 43% from a year earlier amid a rebound in demand [#msg-53136563].‹

[DewDiligence]

3M Invents the Next Small Things—Year After Year

http://money.cnn.com/2010/09/23/news/companies/3m_innovation_revival.fortune/index.htm

›By Marc Gunther
September 24, 2010

FORTUNE -- 3M is everywhere. That's the point George Buckley, the chairman and CEO of 3M, is trying to make as he talks about his favorite subject, inventing things. Last year, he says, "Even in the worst economic times in memory, we released over 1,000 new products."

As if on cue, Buckley's new iPhone rings, showing a photo of his daughter. "Daddy's in a meeting," he says, and hangs up.

"I'm told there's some 3M inside that phone," I say. Buckley replies, "There's lots of 3M inside." He can't say exactly what 3M (MMM) gadget is in the iPhone; Apple's skittish about such things. But point well made: 3M is everywhere.

Apple and many others couldn't do what they do without 3M. The St. Paul company produces a mind-bending 55,000 products. Some of them you know -- Post-it notes, Scotch tape, Dobie scouring pads, Ace bandages, Thinsulate insulation. But most you don't, because they're embedded in other products and places: autos, factories, hospitals, homes, and offices. Scientific Anglers fly-fishing rods and Nutri-Dog chews? Yup. They also come from 3M.

Somehow they all add up to a business with $23.1 billion in revenue and $3.2 billion in net income in 2009. 3M has also recovered nicely from the recession. Sales grew 21% and net income 43% in the first half of 2010. The stock? Up about 20% in the past 12 months. The company's shares have consistently outperformed the S&P 500 and other conglomerates, including GE. Says Buckley: "The magic is back. It is an absolute joy to behold."

3M has long been synonymous with innovation. Founded in 1902 as the Minnesota Mining & Manufacturing Co., it has deployed a range of practices to promote out-of-the-box thinking.

Long before Google gave its engineers one day a week to pursue their own ideas, 3M let its researchers do the same with up to 15% of their time. Several years ago folks in the company's infection-prevention division decided on their own to see whether 3M's Littmann electronic stethoscopes could be wirelessly connected. Last year 3M introduced the first electronic stethoscope with Bluetooth technology. It allows doctors and med students to listen to patients' heart and lung sounds as they go on rounds and then transfer those sounds to software programs for deeper analysis.

In another unusual practice, 3M awards annual Genesis Grants, worth as much as $100,000, to company scientists for research. The money is allocated by their peers and is spent on projects for which "no sensible, conventional person in the company would give money," says Chris Holmes, vice president of 3M's abrasives division.

Management efficiency came at a cost to creativity

Despite such practices, many inside and outside 3M, including Buckley, think 3M lost some of its creative juice under James McNerney, the acclaimed GE alum who led the company from 2001 to 2005 and is now CEO of Boeing. It's not that McNerney, the first outsider to run 3M, did a poor job. The company had become sluggish, and McNerney whipped it into shape. He streamlined operations, laid off 8,000 people, and imported Six Sigma management techniques, popularized by GE, to analyze processes, curb waste, and reduce defects. "He brought the discipline and the focus on execution we needed," says Mark Colin, who oversees a 3M business that makes products for mobile devices. Earnings grew, margins improved, and shareholders cheered.

But the efficiency gains came at a price. Scientists and engineers griped that McNerney, an MBA, didn't understand the creative process. Six Sigma rules choked those working in the labs. "It's really tough to schedule invention," says Craig Oster, a mechanical engineer who has been with 3M for 30 years. (Boeing said McNerney would not be available for comment.)

Why is that important? Because as 3M's older products grow outmoded or become commodities, it must replace them. "Our business model is literally new-product innovation," says Larry Wendling, who oversees 3M's corporate research. The company, as a result, had in place a goal to generate 30% of revenue from new products introduced in the past five years. By 2005, when McNerney left to run Boeing, the percentage was down to 21%, and much of the new-product revenue had come from a single category, optical films.

Turning over a new leaf

The board turned to Buckley, now 63, who had demonstrated his business chops as CEO of Brunswick, an Illinois company known for bowling gear and boats. But the most important thing to know about Buckley, a Brit with a Ph.D. in electrical engineering, is that he's a scientist at heart who has several patents to his name. In other words, he's a good fit for 3M. "This is to me an engineer's and scientist's Toys 'R' Us," Buckley says.

Buckley has laid out some clear business goals for the company. He wants his managers to protect and strengthen 3M's core businesses, like abrasives, industrial tapes, and optical film. He wants 3M to develop lower-cost products to compete in emerging regions. He wants 3M to be part of future growth markets like renewable energy, water infrastructure, and mobile digital media. Above all, Buckley has been an outspoken champion of the labs. Last year, despite the recession, he kept R&D spending at more than $1 billion. Says management guru Ram Charan, who advises 3M: "George has accelerated the innovation machine by devoting his personal time, his energy, his focus, to empowering the researchers, opening up their minds and urging them to restore the luster of 3M." The results speak for themselves: The percentage of 3M's revenue from products introduced in the past five years is back to 30% and may reach the mid-30s by 2012.

Six Sigma remains in force in 3M's factories, but it's gone from the labs. Each of 3M's six major business units has its own research lab, which is product-focused, while the corporate research staff works on core technologies that are shared by all the businesses. Altogether, 3M employs 6,500 people (out of about 75,000) in R&D.

It's the core technologies -- things like abrasives, adhesives, imaging, and films -- that drive growth at 3M, often in unexpected ways. Consider microreplication, a process 3M uses to create tiny, precisely shaped structures that can be arranged on a variety of surfaces; the technology dates to the 1960s, when it was used to make low-cost overhead projectors for schools and offices. The projectors are mostly gone, but microreplication is alive and well, embedded in 3M products that enable traffic signs to be brighter and golf gloves to deliver a tighter grip with less effort. Currently 3M is seeking regulatory approval for a drug-delivery device -- a skin patch made of pain-free microneedles that barely pierce the skin and could replace hypodermics.

It's safe to say that no 3M product will generate the buzz of, say, the next iPhone. But 3M has never been about inventing the Next Big Thing. It's about inventing hundreds and hundreds of Next Small Things, year after year. Things like Cubitron II. Buckley explains that Cubitron II is an industrial abrasive that cuts faster, lasts longer, sharpens itself, and requires less elbow grease than any other abrasive on the market. Introduced last year, it's selling like crazy, to the CEO's delight. "How the heck do [you] innovate in abrasives?" he asks. "A 106-year-old business for us! For goodness' sake -- it's sandpaper!" Catching himself a moment later, he jokes, "I probably need to get out more." Maybe so, but you can understand what he's excited about: little things like grains of sand that add up to the big business that is 3M.‹

[DewDiligence]

3M’s 3Q10 Profit Jumps, but Tepid Outlook Weighs

[No company is perfect—not even 3M. Objectively, the 3Q10 numbers were not bad, especially when you consider that the H1N1 scare in late 2009 created an artificially high comparator for the healthcare and security segments and the acquisition of COGT (#msg-53865254) shaved a few pennies from GAAP EPS. However, the 3Q10 numbers and outlook for the rest of 2010 failed to live up to Wall Street’s lofty expectations, and hence the stock is off 5% since the quarterly results were reported on Oct 28.

3Q10 GAAP EPS was $1.53 and overall YoY sales growth was 11%. YoY sales growth by segment was: industrial/transportation +14%; healthcare +2% (fewer H1N1 masks); display/graphics +18%; consumer/office +11%; security -2%; electro-communications +23%.

3M narrowed its full-year GAAP EPS guidance to $5.59-5.63 (from $5.54-5.69) and its non-GAAP EPS guidance to $5.70-5.74 (from $5.65-5.80); the non-GAAP numbers exclude the one-time hit from US healthcare reform.

The bottom line is unchanged: 3M is one of the best plays on The Global Demographic Tailwind and deserves to be a core holding in any portfolio, IMO.]

http://www.reuters.com/article/idCNN2528200020101028

›Thu Oct 28, 2010 2:42pm EDT
By James B. Kelleher

CHICAGO, Oct 28 (Reuters) - 3M Co (MMM) reported a higher quarterly profit on Thursday, lifted by strong sales to the consumer electronics industry, but it trimmed the top end of its full-year forecast and said rising raw materials costs and other pressures were cutting into margins, sending its shares sharply lower.

The diversified manufacturer, which makes a variety of medical products, also posted slower organic sales growth than in previous quarters because the flu season-related lift in surgical mask sales it enjoyed last year during the H1N1 virus scare is gone.

It said the long economic downturn also appears to be discouraging patients from undergoing elective procedures that use its products.

"Part of it is adverse comps from the H1N1 sales of respirators and masks, which were very strong in the third and fourth quarters last year," said Nicholas Heymann, an analyst at Sterne Agee. "Part of it was higher raw material costs, which appear to be peaking here."

The company also flagged what it characterized as temporary "turbulence" in the flat panel TV market as a result of a double-digit drop in sales during the third quarter that is coinciding with a shift in technology from sets using LCD technology to sets using LED technology. 3M makes optical film used in the screens.

As a result, TV manufacturers are expected to clear out -- in 3M's words "flush" -- their swollen LCD TV inventories during the fourth quarter, a move Heymann said would have an impact on 3M's fourth-quarter results.

"That was the straw that broke the camel's back," Heymann said, referring the selloff in 3M's shares.

The company also sounded a cautious note about the underlying health of two key markets, the United States and Western Europe, saying the economic outlook in both was "uninspiring" and that it expects "an extended period of slow recovery."

Its shares, which hit a 52-week high earlier this week, fell as much as 7.3 percent on Wall Street. They were last down about 6 percent at $84.94.

3M posted a third-quarter profit of $1.1 billion, or $1.53 a share, up from $971 million, or $1.35 a share, a year earlier.

The company, which makes products ranging from Post-It notes and Scotch tape as well as industrial and electronics products, said sales rose 11 percent to $6.9 billion, with double-digit sales increases in three of its six units.

Analysts, on average, expected Minneapolis-based 3M to report a profit of $1.51 a share on sales of $6.83 billion, according to Thomson Reuters I/B/E/S.

The company said it now expects a full-year profit of $5.70 to $5.74 per share, down from a previous estimate of $5.70 to $5.80 a share. It said the reduction was "due solely to anticipated earnings dilution" related to a series of acquisitions it made during the quarter, including its $900 million purchase of Cogent Inc, a maker of identification systems used to screen travelers at border crossings [#msg-53865254].

"We live in a quarter where it is expected that you beat your number and raise your estimate," Brian Langenberg of Langenberg & Co, an investment advisory firm in

"They met and they took down the high end of guidance because of deal dilution, which is understandable. But that won't be good enough for traders today," he said.

Oliver Pursche, the co-portfolio manager of the GMG Defensive Beta Fund, which does not own 3M shares, said the sell-off was an opportunity for investors.

"We view this as an entry point," said Pursche, who is also the president of Gary Goldberg Financial Services, an investment advisory firm with $500 million in assets under management.

"We've been hearing a lot of caution from corporate managements because everyone is being more careful given the overall global economic environment. But for more conservative clients in separate accounts business who are looking for long-term capital appreciation, this is going to be a stock that we are going to own for them."‹