3M (MMM) Divests Identity Management Business To Gemalto

 | Dec 08, 2016 09:14PM ET

Diversified industrial goods manufacturer 3M Company (NYSE:MMM) recently entered into a strategic agreement to divest its identity management business to Gemalto (AS:GTO), an international digital security company. The deal worth $850 million is expected to be completed during the first half of 2017, subject to mandatory closing conditions and regulatory approvals

The held-for-sale business is part of the company’s Traffic Safety and Security Division, which is an integral component of the Safety & Graphics segment. The identity management business provides biometric hardware and software solutions that provide better security to its customers. The business has annual global sales of around $215 million. The business employs approximately 450 employees, who will be absorbed by Gemalto. In order to focus on its core business the management decided to sell this operating segment.

Since 2012 to early 2016, the company pruned its businesses from 40 to 26, thereby improving customer relevance, productivity and speed through a leaner operating structure. At the same time, 3M has maintained a steady investment in R&D to develop innovative products. The company expects to invest $1.8 billion in R&D in 2016 for higher organic growth and complement it through strategic acquisitions.

Regardless of its portfolio restructuring initiatives, 3M underperformed the Zacks categorized Diversified Operations industry, with a negative average return of 1.2% in the last 90 days compared with a 3.9% decline for the latter. This Zacks Rank #3 (Hold) stock appears to be undergoing numerous challenges that are likely to weigh on its performance going forward. The earnings estimates of the company for the current quarter have decreased 3.1% in the last 90 days to $1.90 per share with significant downward estimate revisions.