3M Corp. [MMM] yesterday said it has agreed to acquire Ceradyne, Inc. [CRDN], a developer and manufacturer of advanced technical ceramic products including body armor for military customers, for $860 million.
The deal will expand 3M’s business with the Defense Department but the company said the primary driver behind the acquisition is Ceradyne’s expertise in advanced ceramics, which it says will complement 3M’s ongoing design and development work in advanced materials and ceramics to create new technologies and products. 3M’s current business in ceramics is focused on the dental market and to a lesser extent on the abrasives and automotive areas.
“By joining 3M, Ceradyne associates will have the opportunity to use the power of 3M’s global reach, culture of commercializing new products and operational discipline to accelerate this platform in serving our customers with highly valued solutions,” Chris Holmes, executive vice president of 3M’s Industrial and Transportation Business, said in a statement.
In the defense market, which accounts for the largest share of Ceradyne’s revenues, the company’s primary products are body armor plates that soldiers insert into their bullet resistant vests. Historically, the Army has been the company’s biggest customer for body armor followed by the Marine Corps, although now the Defense Department is in the sustainment phase of procuring the ceramic plates making the Defense Logistics Agency the largest customer.
Ceradyne also makes armor for military vehicles and has participated in a few programs over time.
Currently, about 30 percent of Ceradyne’s business is in the defense market. The California-based company also does a substantial amount of its business in the industrial and energy sectors and to a lesser degree the automotive and commercial markets.
Ceradyne had $572 million in sales last year and is forecasting between $540 million and $565 million, down from previous expectations of between $590 million to $625 million due to reduced revenues from the Enhanced Combat Helmet program and weaker results and outlook in the solar power market.
3M said it is paying $35 per share for Ceradyne, valuing the company at $860 million. Including Ceradyne’s cash and cash equivalents, debt and various stock options, the value of the transaction is pegged at $670 million. The offer price represents more than a 40 percent premium over the closing price of Ceradyne’s stock last Friday.
3M said the deal, which is expected to close in the fourth quarter of 2012, will dilute its earnings by a nickel in the first year after it closes due to accounting adjustment and integration expenses.
Ceradyne’s board of directors has recommended that the company’s stockholders approve the proposed deal. The offer is subject to the tender of a majority of Ceradyne’s shareholders and other closing conditions.
Once the deal closes, Ceradyne will become part of 3M’s Energy and Advanced Materials Division. Citibank served as Ceradyne’s financial adviser on the deal.