Label Maker Sticks With Plan to Sell Divisions

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When label and packaging maker Avery Dennison Corp. agreed last week to sell underperforming parts of its business to a Canadian company, the price was small, but the weight off its back was big.

After a $550 million deal with Minneapolis-based 3M Co. was killed by the Department of Justice last fall, the Pasadena company was eager to find a new buyer for its declining office and consumer products division.

CCL Industries Inc. in Toronto approached the company and eventually offered Avery $500 million in cash for the office supplies division in Brea, which sells labels, binders and writing instruments such as Hi-Liters and Marks-A-Lot markers. Also included in the deal: Avery’s designed and engineered solutions division in Strongsville, Ohio, which makes custom pressure-sensitive labels and coated films for durable goods, electronics and specialty packaging.

Ghansham Panjabi, an analyst with Robert W. Baird & Co. in New York, said that while the offer is a $50 million discount to 3M’s, it was more important to sell than haggle over price.

“It’s a business that was such a hangover on Avery that it was a strategic positive to get that sale done,” he said. “The pricing could have been better, but it is what it is.”

The two businesses had combined revenue of about $910 million in 2012.

Separately, Avery last week reported fourth quarter net income of $49 million, up 121 percent from the same quarter the prior year. Revenue was $1.53 billion, up 5 percent from a year ago.

News of the transaction and the positive earnings report sent Avery shares up more than 6 percent Jan. 30, the day of the announcement, to $38.44.

In a conference call with investors after the acquisition was announced, Avery Chief Executive Dean Scarborough said the acquisition price was right.

“We believe it’s an excellent deal for both companies and for Avery Dennison shareholders,” he said.

Avery declined to comment for this article and CCL could not be reached for comment.

Company ties

CCL, which makes specialty labels, plastic tubes and other packaging for consumer products such as shampoo, laundry detergent and beer, had a long-standing relationship with Avery.

Geoffrey Martin, president and chief executive of CCL, worked for Avery before joining CCL in 2001. The specialty packaging company has also been a longtime Avery customer, buying materials to make labels for consumer products.

“We know both businesses well and have admired the people and the products for many years,” Martin said in a statement.

CCL approached Avery about acquiring its office supplies business in October after the Department of Justice opposed a sale to 3M over antitrust concerns, claiming it would give the manufacturing conglomerate 80 percent dominance in the label and sticky notes business.

CCL agreed in last week’s deal to use Avery to supply label materials for its newly acquired line of office products for five years. Similar terms had been part of the failed 3M deal.

Analyst Panjabi said it was important that the company sell off its office products business. Declining sales were attributed to consolidation in the retail office supply chain stores and higher unemployment among white-collar workers.

“Office products is a declining business, at least in the Western world,” he said. “The company has basically had to deal with negative profit contributions over the last five years, and it was taking away from other parts of the business.”

Avery wanted to sell the two divisions to focus on its core business of making pressure-sensitive label and packaging materials and apparel labeling and inventory tags. It plans to use $400 million in expected net proceeds to buy back shares and make an additional pension contribution.

CCL has 75 packaging manufacturing plants worldwide that employ abut 6,600 people. Avery employs about 30,100 people. It is unclear how many Avery employees will be affected by the acquisition.

Martin said the acquisition is the largest in CCL’s history.

“This acquisition takes the company’s pro forma annual revenue above $2 billion for the first time,” he said in the statement announcing the acquisition.

Panjabi said the sale, which is expected to close midyear pending regulatory approvals, has a much better chance of closing than the 3M deal because CCL isn’t an office supply company.

“From an antitrust perspective, this is going to be much less of an issue,” he said.

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