Spotlight: 3M Company (MMM) *contact for updated tearsheet*
3M’s highly diverse business portfolio, healthy international mix, continuing commitment to R&D and an intensive focus on productivity has contributed to the company’s high profitability and strong cash flows.
Considered a highly reliable barometer of the general health of the economy, 3M stock has fallen in tandem with the market. However, 3M has historically turned crisis or recession into opportunity by utilizing its very solid finances (currently almost $3 billion in cash) to buy quality companies at low valuations.
3M generates significant free cash flow and has plenty of financial flexibility to continue to invest for organic growth, concurrently still pursue business portfolio realignment activities and also reward shareholders materially.
Dow Chemical (DOW) -20.79%, Rohm & Haas (ROH) -16.08%
Dow’s acquisition of Rohm & Haas hit a major snag as a Kuwait backed out of a deal in which a state-owned petroleum company was to pay Dow $7.5 billion for a 50 percent stake in several chemical plants. The deal was to become effective in less than a week, and Dow had intended to use the money to help finance its $15.3 billion purchase of Rohm & Haas.
Kuwait’s decision is a result of significantly lower energy prices compared to when the deal was struck about one year ago, making the deal less attractive. The deal would have given Dow much needed access to low-cost natural gas, which they consume in huge quantities to make its chemicals.
In July, Dow offered $78 per share for Rohm & Haas in an $18 billion deal, but Dow is coming under pressure from lenders and shareholders to renegotiate its offer price in light of the current situation. For years, Dow has been trying to reposition itself, moving away from producing low-margin commodity chemicals and into the higher-margin specialty chemicals business. These events present a major setback for Dow’s plans.
Quick Hits
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Peter Lazaroff, Junior Analyst
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