3M
is on the verge of concluding the largest mass tort litigation in U.S. history, but it is still facing other costly legal issues.
The company announced on Tuesday that it has reached a $6.01 billion settlement with approximately 250,000 plaintiffs. These individuals, mainly military veterans and service members, claimed that 3M produced defective earplugs that resulted in hearing loss.
“I am confident that this settlement of over $6 billion will receive full and overwhelming support, not only because it holds 3M accountable but, more importantly, because it provides fair and justified compensation to our veterans,” stated Bryan Aylstock, the court-appointed lead plaintiffs’ counsel, in an email to CNBC.
While the settlement news resolves a major legal burden, 3M is still awaiting approval of its $10.3 billion settlement with water utilities over contamination by “forever chemicals.”
However, this settlement is facing resistance from more than 20 states and covers only a portion of the liabilities. Additionally, it does not include the states that have filed lawsuits against 3M, nor does it cover personal injury claims.
According to Capstone, the estimated total liability risk for 3M regarding PFAS is nearly $30 billion, beyond the existing settlements.
3M has also faced lawsuits from countries such as the Netherlands and Belgium regarding PFAS contamination. Europe is currently considering a ban on PFAS chemicals. In the U.S., the Environmental Protection Agency is deliberating whether to classify PFAS as a hazardous chemical. This potential classification could lead to increased testing and a better understanding of the widespread presence of this toxic chemical.
To finance its settlements, 3M has implemented cost-cutting measures, including the elimination of 8,500 jobs, representing 10% of its workforce, this year.
The industrial giant is additionally planning to spin off its successful healthcare business by the end of 2023 or early 2024. Analyst Stephen Tusa from JPMorgan predicts that this transaction will generate $7 billion to $9 billion in cash flows for 3M.
There has been considerable debate surrounding 3M’s dividend, which currently yields 6.1% for investors. Wall Street firms such as JPMorgan, UBS, and RBC have suggested that 3M’s dividend is at risk. “Our expectation is that 3M will reduce the dividend following the spin-out of the Healthcare unit,” UBS analysts wrote in a note to clients on Monday.
The timeline for the business transaction appears to be on schedule, with 3M recently announcing the appointment of Bryan Hanson, CEO of Zimmer Biomet, as the CEO of its healthcare business.
3M company global headquarters in Maplewood, Minnesota.
Michael Siluk | Universal Images Group | Getty Images
In the same announcement, it was revealed that Chief Financial Officer Monish Patolawala has added the title of president to his role. RBC analyst Deane Dray noted in a client memo that “this arguably positions him as the heir-apparent to CEO Mike Roman.”
Roman has been leading 3M for five years, overseeing the company through the challenges of the Covid pandemic, including the global shortage of N95 respirators. He has also had to navigate the earplugs and PFAS litigations, as well as criticism from a major shareholder regarding the stock’s underperformance.
Since Roman’s appointment as CEO in 2018, 3M’s stock has declined by 48%. In the same period, the XLI Industrials ETF has increased by 50%.
On Tuesday, the stock rose by over 1%.
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