WRAPUP 2-3M, Honeywell step up deals amid economic uncertainty

* 3M in $860 million deal to buy Ceradyne

* Honeywell to pay $525 million for majority of Thomas Russell

* Moves follow talk that sellers' price expectations declining

* Ceradyne shares surge 42.9 percent; 3M, Honeywell also gain

(Adds analyst comments, background)

By Scott Malone

Oct 1 (Reuters) - 3M Co and Honeywell International Inc signed separate takeover deals to expand their broad lineups of industrial goods at a time of uncertainty for the world economy, the large U.S. manufacturers said on Monday.

3M said it would pay $860 million to buy industrial ceramics company Ceradyne Inc , the biggest takeover deal for the maker of products ranging from Post-It notes to films used in television screens since it named Inge Thulin chief executive officer in February.

Honeywell announced plans to pay $525 million in cash for a 70 percent stake in privately held Thomas Russell Co, which makes equipment used in natural gas production. Big U.S. manufacturers including General Electric Co have invested heavily to boost their exposure to that sector amid a surge in U.S. natural gas production driven by advances in hydraulic fracturing, or fracking, technology.

The announcements come less than two weeks after the CEOs of both Honeywell and 3M separately said that a worrisome world economic outlook was making it easier to negotiate acquisitions by tempering expectations of what companies would fetch.

Despite those assertions, 3M seems not to have gotten Ceradyne for a bargain, paying a 43 percent premium on its Friday closing price, said Edward Jones analyst Jeff Windau.

"The valuation is pretty full on this one," Windau said. "But it does fit nicely with 3M and what their fundamental business is, and that is the materials sector. It makes a lot of sense for them."

S&P Capital IQ analyst Richard Tortoriello said 3M had paid a fair price for Ceradyne, whose shares were down about 9 percent this year as of Friday.

Ceradyne stock was up 42.9 percent at $34.91 in morning trading, just below the $35 offer price from 3M, whose shares gained 1.9 percent to $94.16. Honeywell rose 2.4 percent to $61.19.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Reuters Insider: 3M buying Ceradyne For a story on the 3M deal For a story on the Honeywell deal ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> MANUFACTURING M&A ON THE RISE

The deals come as worries about the U.S. fiscal cliff that could force sharp year-end spending cuts by the federal government and as Europe's debt crisis and slowing growth in Asia are sapping corporate confidence.

In response, U.S. industrials have stepped up their pace of dealmaking. So far in 2012, they had announced $50.93 billion in mergers as of Sunday, up 7.2 percent from a year earlier. During that time, the overall pace of U.S. dealmaking has declined 23.1 percent to $593.49 billion, according to Thomson Reuters data.

"When times are bad and everybody is uncertain about the future, that is the right time to buy," Honeywell CEO Dave Cote said last month, reasoning that acquisitions made in boom times are more likely to be overvalued.

Serial buyers, such as 3M and Honeywell, tend to study takeover targets for an extended time before making an offer, moving only when they feel they will be able to negotiate a price that matches their valuation models, said analyst Brian Langenberg of Langenberg & Co.

"If the asset makes sense and the price makes sense, you go for it," Langenberg said.

Not every company in the sector is looking to bulk up, though. Tyco International Ltd on Monday completed its three-way breakup, with the remaining parent company focused on commercial fire and security products, with its former consumer alarm business now trading as ADT Corp and its former water operations rolled into Pentair Inc .


Thulin told investors on Sept. 19 that he would seek fewer but larger deals than his predecessor, George Buckley, but he held to the company's long-term goal of making $1 billion to $2 billion in acquisitions per year.

The company has yet another large deal in the works - it is working to overcome U.S. regulators' objections to its planned $550 million takeover of Avery-Dennison Corp's office products business.

3M said its deal would reduce earnings by 5 cents per share in the first 12 months following closure, which it expects in the fourth quarter. Analysts have forecast 2013 earnings of $6.93 per share, according to Thomson Reuters I/B/E/S.

Focusing on larger deals may be a more effective way of increasing the size of 3M, which analysts expect to generate $30 billion in revenue this year. Ceradyne would add $476.7 million to that total.

Meanwhile, Honeywell's UOP arm has the right to buy the remaining 30 percent of Thomas Russell, at a price linked to the business's operating income.

Decade-old Thomas Russell should generate 2012 revenue of about $425 million, Honeywell said. Analysts expect revenue of $38.11 billion this year from Honeywell, which also makes aircraft electronics and building control systems.

Honeywell said it expected its deal to have no effect on 2012 profit and to boost 2013 earnings.

(Reporting by Scott Malone in Boston; Editing by Lisa Von Ahn)

((scott.malone@thomsonreuters.com)(+1 617 856 4342)(Reuters Messaging: scott.malone.thomsonreuters.com@reuters.net))