Minnesota-based American manufacturing conglomerate 3M announced on July 26 that it will spin off 3M medical into a publicly traded company. The company revealed that this will result in two companies better positioned in the global market to pursue its individual goals.
In a written statement, the firm mentioned that this move will enable 3M healthcare to become “a leading global diversified healthcare technology company focused on wound care, healthcare IT, oral care, and biopharma filtration.”
Why Did 3M Spin Off Healthcare?
As individual companies, 3M medical and the new 3M will be more agile and adaptable to global changes that will help them comfortably pursue long-term profitability. It will also boost investment decisions pertaining to innovation and growth.
“Today’s actions advance our ability to create value for customers and shareholders,” said 3M chairman and chief executive officer Mike Roman. “Disciplined portfolio management is a hallmark of our growth strategy. Our management team and board continually evaluate the strategic options that will best drive long term sustainable growth and value. The decision to spin off our Health Care business will result in two well-capitalized, world-class companies, well positioned to pursue their respective priorities.”
In June, Roman had admitted that it was a mistake for the company to downplay rising costs. The 3M medical spin off will also help the company boost shareholder value.
New leadership will also bring in relevant expertise to track changes and drive value creation. 3M healthcare was able to generate approximately $8.61 billion in sales in 2021. The company believes that the division will propel its medical unit towards providing “better, smarter, and safer healthcare for patients worldwide.”
A separate 3M healthcare unit also means a better corporate structure that can deal with mounting litigation. The division is responsible for almost a quarter of 3M’s revenues and manufactures medical products like surgical supplies, bandages, skin adhesives, oral aligners, air purifiers, and optical lenses amongst others.
3M Litigation and Growth
Meanwhile, in a separate press release the manufacturing giant admitted that it is taking steps to solve cases related to its Combat Arms Earplugs. Aearo Technologies, which manufactures the earplugs, has filed for Chapter 11 proceedings. The company is facing lawsuits from more than 290,00 former and active military members who claim that the earplugs are defective. The plaintiffs’ attorneys stated that they would fight to have the bankruptcy charge dismissed. Out of the 16 trials to date involving 19 service members, plaintiffs have won in 10, with about $265 million in combined awards to 13 plaintiffs.
The company has set aside $1 billion to fund a trust to resolve claims and provide compensation to aggrieved parties. They also promised to provide additional funding if required. 3M, however, reiterated that it believes its products are safe, when used properly. Experts believe that 3M healthcare’s decision to tackle the earplug-related litigation head on is a good move for the long-term health of the company. On the other hand, its Bair Hugger surgical warming system is battling close to 6,000 lawsuits.
Although shares have plunged by nearly 25% this year, they climbed around 5% after the split announcement. 3M’s second-quarter revenue declined by nearly 3% to $8.7 billion. Net income dropped to $78 million from $1.5 billion compared to the previous year.
Goldman Sachs & Co and PJT Partners are serving as financial advisors and Wachtell, Lipton, Rosen & Katz is serving as legal counsel on the spin-off of 3M’s healthcare business. The company expects 3M healthcare to be independently functional by the end of next year.
It is also splitting off its food safety business that will merge with Neogen by September.
