3M plans to separate $8.6 billion from its healthcare business, a move aimed at increasing its focus and boosting profitability.
While it wasn’t a complete breakup Like those suggested by industrial counterparts General Electric and Toshiba, the decision announced Tuesday will profoundly reshape Maplewood-based 3M and chart a new course for the yet-to-be-named healthcare group.
“It’s a great opportunity for both companies,” CEO Mike Roman told the Star Tribune. “Managing our portfolio actively helps us complement the value we create through our innovations and the businesses we build.”
The healthcare business accounts for a quarter of 3M’s revenue. Products include dressings, medical regulator devices, oral care and healthcare information technology.
Once completed, the 3M healthcare subsidiary will be the third largest medical technology company in the state after Medtronic and Boston Scientific.
The remaining company, which will keep the 3M name, last year reported $26.8 billion in sales across its other segments: safety and industry, consumer, transportation and electronics. Company leaders have said the company will own 19.9% of the spin-off healthcare it will sell over time.
Roman told employees today that not much will change for now. 3M has more than 90,000 employees globally and approximately 10,000 in Minnesota.
“There were a lot of questions about the next steps and how we would go forward,” he said. “What will happen to the employees, the name of the company and the locations and premises of these companies will be determined over the next 15 to 18 months.”
With revenues of nearly $9 billion, the Hormel and Polaris subsidiary would be ranked 13th in the Star Tribune’s annual public company rankings — if it were headquartered in Minnesota.
The chapter is expected to be completed by the end of 2023.
The move comes on the heels of other industrial conglomerates, such as General Electric and Johnson & Johnson, which recently announced plans to split different segments into different companies.
Many investors view such moves as a way to unlock the locked-in value of a particular segment that may be buried under a mountain of divergent priorities for the company.
Analysts largely praised 3M’s planned release on Tuesday, but questions remain about how the new companies will perform.
“This is a stable, low-growth, profitable business,” Wolfe Research analyst Nigel Koo wrote of the healthcare business. He added that the decision to dismiss her “is an acknowledgment of the need for liquidity.”
In recent weeks, 3M stock has been trading at its lowest levels in nearly a decade. Shares rose 5% on Tuesday, to close at $140.82.
“We’ve positioned healthcare to be successful as a stand-alone organization,” Roman told investors Tuesday morning. “Both companies will increase their focus to continue investing and winning in global end markets and will have greater flexibility to strategically deploy capital, drive innovation, and accelerate growth.”
The planned spin-off also comes less than three years after 3M grew its healthcare business with its largest-ever acquisition, Acelity buys medical devices for $6.7 billion.
For most of its 120-year history, 3M has focused on business acquisition – growing from an abrasives manufacturer to the major industrial supplier and maker of consumer products as it is today.
But in recent years, 3M has been removing more investments than just acquisitions. In addition to the pending sale of its food safety business, 3M has offloaded 15 different companies in the past decade, according to Mergr, a database of mergers and acquisitions.
One of the largest spin-offs of the company was created edition in 1996.
After the separate offering, 3M will retain litigation responsibilities over the PFAS and earplug, which are seen as a major drag on the company’s bottom line and stock.
3M saw lower sales and profitability across all of its divisions this spring compared to the previous year. Total revenue for the company’s second quarter, which ran from April to June, was $8.7 billion.
The company’s profits were almost entirely wiped out by Combat Arms and PFAS litigation costs. 3M made a profit of $2.2 billion before these and other expenses; Unadjusted quarterly earnings were $78 million.
On Tuesday, 3M announced plans to solve the earplug issue from Combat Arms by sending its subsidiary Aearo Technologies. Through bankruptcy and putting $1 billion into a trust to pay claims.
There are about 230,000 pending cases brought by US military service members and veterans who allege that earplugs were defective and caused hearing damage. Aearo filed for Chapter 11 bankruptcy protection on Tuesday.
The company is also paying hundreds of millions of dollars to settle PFAS concerns in Belgium, although it faces an ongoing lawsuit in the US.
“We plan to aggressively defend ourselves,” Roman said.
On Tuesday, 3M cut its full-year financial forecast for 2022 due to the strength of the US dollar and the possibility of a recession.
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