By Ben Kesling
Expanding toll-road operations throughout the U.S. and overseas
prompted 3M Co. (MMM) to pay $110 million in cash for a unit of
Federal Signal Corp. (FSS) that will bolster the company's profile
in the tolling industry.
The Minnesota company announced the agreement Thursday to
purchase Federal Signal Technologies Group. The sale price was
almost double what some analysts had seen the unit going for, as
there had been speculation it might be on the auction block. It
lifted Federal Signal's share price 19% in recent trading.
3M shares slipped 1% to $86.70 a share. The company said the
purchase will dilute earnings by two cents a share in the first
year after the purchase.
Federal Signal Technologies Group focuses primarily on parking
management, license-plate-recognition software and toll
collection.
"3M's expertise and innovation in the traffic industry make it a
natural choice to continue to build this important business," said
Dan McGurran, director of 3M's motor-vehicle systems and
services.
3M manufactures more than 55,000 products in 60 countries. This
acquisition will expand its footprint in the world of high-speed
tolling, allowing motorists to pay fares via electronic
transponders without having to slow down on the highway.
3M said the electronic-tolling industry is a $3 billion sector
expected to expand by more than 12% a year "as government agencies
increasingly rely on tolling to fund roadway infrastructure,
construction and maintenance."
"Federal Signal offers technology that is new to us," said
company spokeswoman Donna Fleming Runyon. "But it's complementary
to technologies we already use for our traffic-management
solutions."
The technology group lost $3 million for Federal Signal in the
first quarter of 2012, and analysts had expected Chief Executive
Dennis Martin to put this portion of the company on the auction
block.
Walter Liptak, an analyst at Barrington Research, said in a note
he sees little risk in the deal being approved and 3M's spokeswoman
said the company expects to close the deal in the second half of
2012.
When Mr. Martin took the helm at Federal Signal in November
2010, he immediately announced he wanted to pare costs and
consolidate operations.
"3M is a company committed to acquisition spending," said Adam
Fleck, equity analyst at Morningstar Inc. "They've mentioned they
want to spend about $2 billion in acquisitions this year and this
is around 5% of that."
Mr. Fleck said the acquisition won't be as much of a synergistic
"slam dunk" as 3M's purchase announced in January of the
office-and-consumer-products division of Avery Dennison Corp.
(AVY), but "it's a nice tuck-in for 3M" and will "bring in
technology they can leverage across their entire portfolio."
Write to Ben Kesling at benjamin.kesling@wsj.com