Avery Dennison has paid approximately $1.34 billion to buy Paxar, a move that will blend Paxar’s identification and merchandising systems with Avery’s portfolio of labeling materials, retail tags and office products business. The all-cash deal will also add Paxar’s RFID smart labels, printer-encoders and services to Avery Dennison’s product lineup.
Pasadena, Calif.-based Avery Dennison and White Plains, N.Y.-based Paxar have long been considered competitors since much of their business is similar, but executives at both companies say the two firms’ business models and cultures will complement each other. Avery Dennison reported sales of $5.6 billion in 2006, while Paxar’s reported sales for the year were $880 million.
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“This kind of perfect fit doesn’t come along that often,” said Dean Scarborough, president and CEO of Avery Dennison, during a Mar. 27 Webcast announcing the acquisition. “Two businesses with common strategic visions and highly complementary strengths, combined, will be better equipped to achieve our top-line growth objectives while realizing substantial operational efficiencies and cost synergies as we integrate these two businesses.” Annualized cost savings from synergies, according to Scarborough, could create value up to $100 million.
For Paxar’s part, the company will be able to leverage what Rob van der Merwe, Paxar’s chairman, president and CEO, call’s Avery’s world-class resources that fuel innovation and manufacturing excellence. “This will enable us to improve productivity, take unnecessary costs out and accelerate innovation—and all of this will help us help our customers sell more products and reduce their costs,” van der Merwe said during the Webcast. “This is a great fit, and we are looking forward to becoming a part of Avery Dennison.”
Both companies have been pursuing the RFID market for several years, offering RFID smart labels, printer-encoders and label services. Avery Dennison, in addition, makes RFID inlays, which need to be converted into labels. In September 2005, Avery Dennison made headlines when it unveiled an EPC Gen 2 UHF RFID inlay available for 7.9 cents each in quantities of 1 million (see Avery Dennison, RSI ID Lower Price Bar).
A year ago, Avery Dennison expanded its line of Gen 2 labels to include designs for use on materials that tend to make it difficult to read tags, such as metal, which tends to reflect RF signals, or water, which tends to absorb them (see Avery Dennison Unveils New Gen 2 Inlays).
“The combination of our capabilities in RFID, in particular, gives us an opportunity to develop closer ties between Paxar and our RFID inlay division, and that will help us succeed in this important new segment,” Scarborough said during the Webcast. The transaction is expected to close by year’s end, subject to Paxar’s shareholder and regulatory approvals.
One strength that Paxar could bring to Avery Dennison’s business is its strength in unit-level tagging for the retail market. Avery Dennison may also gain from Paxar’s European presence. “I think Paxar has generally been much stronger in Europe, sales wise, so Avery may be able to benefit from increased exposure to the channel there,” says Rob Timme, an analyst with Robert W. Baird & Co., a provider of investment banking, wealth-management and other financial services.