3M has dropped its $US550 million takeover of Avery Dennison's office products division after the US Justice Department said it would take legal action if the companies didn't abandon the transaction.
The Justice Department said in a statement that the merger would have given 3M more than 80 per cent of the US market for labels and sticky notes.
The department's investigation found that 3M and Avery have dominated adjacent parts of the office products business for many years, with Avery making labels and 3M selling sticky notes under its Post-it brand.
The deal would have combined the two largest label makers in the world, according to Deane Dray, an analyst at Citigroup Inc. in New York.
"Avery probably will bring the business back into continuing operations and evaluate it some other time rather than seek another buyer right away," he said.
The Avery transaction would have been 3M's biggest since the company paid US$662.4 million to buy fingerprint-identification systems maker Cogent Inc. in 2010.
Buying the division would have allowed 3M to add products such as Marks-A-Lot pens to a line-up of office goods that includes Scotch tape.
3M became the second-biggest global player in the label market behind Avery Dennison after it completed the 2010 purchase of a majority stake in Japanese label maker A-One's consumer and office label business.
The proposed transaction was a relatively small one for 3M, a US64 billion company that makes products ranging from dental braces to commercial sealants.
"It's not that material to 3M," Dray told the Wall Street Journal. "The collection of products are very good quality, but they were more line extensions and gap-fillers rather than a pivotal part of the business model."
