Avery Dennison shares fall on breakup of 3M deal

Avery Dennison Corp.'s shares plunged Thursday after 3M Co. dissolved plans to buy its office and consumer products business.

THE SPARK: Avery Dennison and 3M announced Wednesday that the maker of Post-It notes would not move forward with the deal. 3M had agreed in January to buy the division for $550 million. The companies did not give a reason for ending the agreement.

THE BIG PICTURE: The deal would have given 3M a huge portion of the U.S. labels market to complement its Post-It sticky notes and other office supplies business.

The Department of Justice had threatened to sue to stop the deal, saying the sale would substantially reduce competition in the sale of labels and sticky notes, resulting in higher prices and less innovation.

Avery Dennison, which had planned to use proceeds from the deal to reduce debt, increase pension contributions and repurchase shares, said it will continue to pursue a divestiture of the office and consumer products business.

THE ANALYSIS: Morningstar analyst Todd Wenning said that this will be a tough transition for Avery Dennison as they had being moving forward for the past nine months on the belief that the deal would clear. The Pasadena, Calif., company may still find a buyer for the business, but he estimates that it's unlikely another company will be able to offer the same price as 3M.

SHARE ACTION: Avery Dennison shares fell $1.11, or nearly 4 percent, to $30.34 in afternoon trading. The stock had increased roughly 10 percent from the day prior to the deal was announced to Wednesday's close.