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Teledyne (TDY) to Acquire 3M's Gas & Flame Detection Business

Zacks Equity Research

Teledyne Technologies Inc. TDY has recently placed a $230-million offer to the Minnesota-based 3M Company MMM for acquiring its gas and flame detection business. Per the terms, the company will purchase 3M’s Oldham, Simtronics, Gas Measurement Instruments (GMI) and Detcon product lines.

The transaction also includes purchase of selected products from 3M’s Scott Safety brand. The acquisition is expected to close during the second half of 2019, subject to necessary regulatory approvals.

Rationale Behind the Acquisition

Recent expansionary budget proposals under Trump’s leadership and other policy reforms made by the current U.S. administration have prompted defense companies to merge with companies either hailing from the same industry or even cross-industry to enhance product portfolio. These mergers were backed by the strategy that the combined companies, with bigger and improved products in their portfolio, will be able to acquire more contracts and gain from such budgetary amendments, prevalent in the nation.

Such merger related accretions in the current backdrop must have enticed Teledyne to acquire 3M’s business. It is also imperative to mention in this context that after a disappointing first quarter of 2019, 3M recently completed a strategic review that included the divestment plan of its gas and flame detection business for increasing its focus on the other businesses within its personal safety portfolio. We believe this declaration to be yet another catalyst for Teledyne to acquire 3M’s gas and flame detection business.

How Will the Acquisition Benefit Teledyne?

With an annual global sale of about $120 million, the gas and flame detection business will significantly benefit Teledyne on completion of the acquisition (per BusinessWire). The deal will help the company develop enhanced sophisticated instrumentation, digital imaging products and software, aerospace and defense electronics, and engineered systems.

Furthermore, the unit’s buyout will help expand Teledyne’s environmental instrumentation businesses and market share in a variety of industries, including petrochemical, power generation, oil and gas, food and beverage, mining, and waste water treatment. The acquisition will not only broaden Teledyne’s product portfolio, but will also create economies of scale, and expand customer base and distribution.

Price Performance

Shares of the company have gained 19% in the past twelve months compared with the industry’s growth of 9%.


Zacks Rank & Key Picks    

Teledyne currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Lockheed Martin Corporation LMT and Northrop Grumman Corporation NOC. While Lockheed Martin sports a Zacks Rank #1 (Strong Buy), Northrop Grumman carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lockheed Martin came up with average positive earnings surprise of 17.35% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has increased 4.21% to $20.28 in the past 60 days.

Northrop Grumman Corporation delivered average positive earnings surprise of 18.50% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 1.85% to $19.29 in the past 60 days.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
 
Teledyne Technologies Incorporated (TDY) : Free Stock Analysis Report
 
3M Company (MMM) : Free Stock Analysis Report
 
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Zacks Investment Research