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Thursday, November 09, 2006

3M (MMM): What Do You Say When $2.1 Billion Cash Is No Help?

3M (MMM) is still in a funk, and that is even after the company got to piece-meal a unit out for higher cash.

The company reached agreements to sell its global pharmaceuticals division in 3 separate deals for a combined $2.1 billion. There were earlier reports that warburg Pincus or an indian drug company would bid, and other private equity names had been speculated.

Graceway Pharmaceuticals, a Tennessee-based drug unit of GTCR, will pay $875 million for 3M’s pharma operations in North and South Americas and will absorb Chester Valley Pharmaceuticals.

Ironbridge Capital and Archer Capital in Australia bought 3M’s Asia-Pacific pharmaceutical operations for $349 million.

Meda in Sweden will acquire 3M's European pharmaceutical business for $857 million.

The acquirers will acquire regional marketing and intellectual property rights for 3M's well-known branded pharmaceuticals, including Aldara, Difflam, Duromine, Tambocor, Maxair, Metrogel-Vaginal and Minitran. 3M's Drug Delivery Systems Division will be a source of supply to the acquiring companies for the products. The company also gets to essentially trim 1,050 workers from its 69,000+ ranks.

Just a year ago 3M was considered a potential acquirer of other medical-tech operations. But that was before the stock went into coma. The stock is still up 33% over the last 5 years, but the street has considered it dead money for about 2-years as it has been stuck between $70 and $90 for just about the entire time. It didn't help that the coatings business for plasma and flat panel screens tanked while the tech sector has been on fire.

The stock tried to open positive on the day, but it slid lower with the market and shares are now down 0.5% to $79.00. That is a pretty sad message the market sends when you get to trim 1.5% of your workforce without paying large severances, get to get rid of certain operations that allow you to focus on core operations, and take in about $2.1 Billion in cash. The Motley Fool wrote that 3M was THE blue chip to own for 2007, but it looks like investors didn't get the memo.

3M is often referred to or compared to General Electric (GE), but they look a bit different on paper.

Mkt. Cap $364B $58 B
P/E 21.5 17.1
Cash $59.3B $1.29B
Assets $682B $22.6B
Liabilities $570B $11.7B
Dividend 2.80% 2.30%

Jon C. Ogg
November 9, 2006

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