3M Co. announced that it will spin off its healthcare business into a separate public-listed company, joining a raft of manufacturing firms that are looking to simplify their business and boost investor returns. The company also said its Aearo Technologies unit which makes earplugs for the U.S. military has filed for bankruptcy protection. The unit is facing multiple claims from veterans who say its earplugs were defective and caused hearing damage.
Some plaintiffs allege Aearo hid design flaws, fudged test results and failed to provide instructions on proper use of the earplugs. “The company believes that, absent the actions taken today, the claims could take years, if not decades, to litigate on a case-by-case basis,” 3M said in a statement. The Post-it maker added it has committed $1 billion to fund a trust to resolve all claims determined to be entitled to compensation. As a result of the funding agreement, 3M recorded a total pre-tax charge of $1.2 billion in the second quarter.
Corporate break-ups are on the rise amid a growing consensus on Wall Street that companies perform best when their focus is streamlined, as well as increasing pressure from activist hedge funds to boost investor returns. 3M’s healthcare business, which contributed about one-fourth of total company revenue in 2021, will focus on wound care, oral care and healthcare technology.
The company, which will retain a stake of 19.9% in the new unit, expects to complete the transaction by the end of 2023.
The announcement comes alongside 3M’s second-quarter earnings report. Net income dropped to $78 million from $1.5 billion a year earlier due to the pre-tax charge for the funding agreement. Revenue fell nearly 3% to $8.7 billion and 3M’s second-quarter adjusted profit fell to $2.48 per share from $2.75 per share a year earlier, however, it beat analysts’ average estimate of $2.42 per share.