(Bloomberg) — 3M Co. plans to spin off its multibillion-dollar health-care operations, a move that could leave the manufacturer flush with cash as it copes with shifting economic currents that have sapped its profits.
The company will retain a stake of 19.9% in the medical-supplies business initially and sell off the holding over time, 3M said Tuesday in a statement. The portfolio move will dramatically reshape a company known for diverse product lines, from electronic components to dental adhesives to Post-it notes.
3M, based in St. Paul, Minnesota, has underperformed in recent years amid supply-chain challenges, currency fluctuations and rising costs. A spinoff could boost 3M’s sagging value, bolster its capital allocation strategy and give it “a liquidity war chest,” according to a note from Bloomberg Intelligence analysts Monday. The independent health business could be worth as much as $45 billion, they said.
3M’s shares jumped 6.1% as of 7:45 a.m. before regular trading in New York. The stock had tumbled 24% this year through Monday, worse than the decline in the S&P 500 Index.
With about $8.6 billion in sales last year, health-care accounted for almost one-quarter of 3M’s total revenue. The unit makes products across markets, including surgical supplies, bandages and biopharmaceuticals.
While not a wholesale breakup, 3M’s spinoff reflects a trend among industrial companies to split their operations to bring more focus. General Electric Co. is separating its power and health-care businesses, while United Technologies recently hived off its elevator and air-conditioner operations before merging with Raytheon.
3M’s tax-free transaction is expected to be completed by the end of 2023, subject to final approval from the board and regulators.
The spinoff was revealed along with other significant announcements Tuesday, including second-quarter earnings results. The company cut its full-year sales and profit forecasts as the surging value of the US dollar added to pressures from snarled supply chains, inflation and softening demand in some of its key markets.
In a separate statement, 3M said it is taking steps to resolve litigation related to its Combat Arms Earplugs, with its Aearo Technologies business voluntarily initiating Chapter 11 proceedings. 3M said it’s committing $1 billion to fund a trust to resolve claims related to the earplugs worn by military personnel.
(Updates with additional details throughout)
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