3M Wasting Time With Federal Signal Tech Purchase

Federal Signal Corp. (NYSE: FSS) is surging on news that 3M Co. (NYSE: MMM) is going to acquire the company’s technology business called FSTech.  The deal is only $110 million in cash, but it added 18% to Federal Signal shares as its market cap was under $300 million before the deal was announced.  Obviously this is good for Federal Signal, but what we cannot get a handle on is exactly why 3M is bothering with this.

3M Co. (NYSE: MMM) is seeing shares down 0.8% at $86.83 at the end of the day.  Here is why we think this is a waste of time: 3M has a market value of $60.3 billion.  This acquisition of Federal Signal’s Oak Brook, Illinois-based unit is into intelligent transportation solutions and it makes electronic toll collection and it offers parking management hardware and software services.  So, how much can $110 million move the needle for a $60 billion company?

3M generated $29.6 billion in sales in 2011 and the company has raised its dividend every year for as long as memory serves.  Maybe 3M feels that because of Federal Signal’s long-term declining share price that it is getting a great deal.  Still, it is just hard to imagine that this intelligent transportation solutions unit can move the needle very much.

JON C. OGG