(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 dramatic step, which sent 3M’s shares up the most since the early days of the pandemic, will reshape a company known for diverse product lines, from electronic components to dental adhesives to Post-it notes. It 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 company, 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.
The move came as 3M began Chapter 11 proceedings for a separate earplug business that had been the subject of multiple lawsuits. The steps announced Tuesday collectively address two of the main points of contention over Chief Executive Officer Mike Roman’s leadership of 3M, shoring up the balance sheet and beginning to resolve the sprawling liabilities — including from its production of so-called forever chemicals — hanging over the company.
3M’s shares jumped 5.7% at 9:42 a.m. in New York after gaining as much as 8.6%, the biggest intraday advance since March 2020. The stock had tumbled 24% this year through Monday, worse than the decline in the S&P 500 Index.
Industrial Breakups
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.
With about $8.6 billion in sales last year, 3M’s health-care unit accounted for almost one-quarter of the company’s total revenue. The division makes products across markets, including surgical supplies, bandages and biopharmaceuticals.
The 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.
3M also said in a separate statement that it’s taking steps to resolve litigation related to its Combat Arms Earplugs, with its Aearo Technologies business voluntarily initiating Chapter 11 proceedings. 3M will committing $1 billion to fund a trust to resolve claims related to the earplugs worn by military personnel.
The bankruptcy maneuver drew criticism from US military veterans suing the company. The action “is further proof that they value their profits and stock price more than the well-being of veterans who fought and served our country,” Bryan Aylstock, the court-appointed lead plaintiffs’ counsel in a lawsuit against 3M, said in a statement. He added that they will argue for the bankruptcy court to deny 3M’s petition.
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