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(Reuters) - Avery Dennison Corp AVY.N said it would sell its consumer and office supplies unit, which includes Avery labels and Hi-Liters markers, and its coated films business to Canada's CCL Industries Inc CCLb.TO CCLa.TO for $500 million.
Avery shares rose as much as 11 percent to a 19-month high of $40.00 on the New York Stock Exchange, while CCL jumped 16 percent to a life-high of C$53.25 on the Toronto Stock Exchange.
The sale comes three months after 3M Co (MMM.N) dropped its $550 million offer to buy Avery's office and consumer products business following anti-trust concerns.
"Avery is certainly selling this business for less than what it was supposed to sell it to 3M for. We expected that to happen, but we didn't expect them to package another business along with it," Morningstar analyst Todd Wenning said.
Sales of office supplies have taken a hit as businesses and governments cut spending in a weak economy. Margins have also suffered with rising raw material costs.
Wenning, however, added the sale would allow Avery to focus on its pressure-sensitive materials and retail branding businesses.
The pressure-sensitive materials business, which makes label and packaging materials for food and beverages, accounted for about 70 percent of the company's 2012 revenue of $6 billion.
Avery expects to use proceeds from the sale to repurchase shares and make an additional pension contribution. The company spent $235 million on share buybacks in 2012, reducing its outstanding shares by 7 percent.
CCL Industries, which describes itself as world's largest producer of labels and is one of Avery Dennison's largest customers, said the deal would help expand its presence in the North American market.
"These are the last assets (Avery) owns that are in the field of making labels. So it aligns them in the labels materials space and it aligns us as the world's largest producer of labels," CCL Industries CEO Geoffrey Martin told Reuters.
CCL Industries, which competes with Multi-Color Corp LABL.O and Japan's Fuji Seal International Inc 7864.T, provides packaging products for personal care, food and beverage, and healthcare markets.
Toronto-based CCL Industries said the two businesses had combined revenue of about $910 million in calendar year 2012.
"We are significantly expanding our CCL Label market sectors with our entry into the North American durable goods market," Martin said, adding that the deal would boost CCL's pro-forma annual revenue above $2 billion for the first time.
The Canadian company expects the deal to add to its earnings per share in 2014 and beyond.
J.P. Morgan Securities LLC advised Avery Dennison on the deal, which is expected to be completed in mid-2013. Latham and Watkins was its legal counsel.
Avery also reported fourth-quarter results on Wednesday. Profit more than doubled to $49 million and the company said it expects 15-35 percent growth in adjusted earnings per share this year.
Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Saumyadeb Chakrabarty