3M demerger: MMM spin off Food Safety Business SpinCo merger with Neogen timing and details in full

2022-08-13 05:22:52 By : Ms. Mayling Zhao

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From Scotch Tape to face masks

How the 3M-SpinCo-Neogen transaction will work:

3M’s hearing problem

US research and manufacturing conglomerate 3M (MMM) has revealed further details this week about its $5.3bn scheme to spin off its food-safety business, offering some lift for a stock which has trailed the broader market recently.

Shareholders will have the option to convert 3M shares (which trade on the NYSE) into stakes in the merger with Nasdaq-traded Neogen (NEOG). Following the transaction, Neogen is to be controlled by 3M, under the terms of the agreement. The details of that process include the creation of a company, SpinCo, for the process of converting 3M shares into Neogen shares.

3M is also spinning off its health care products business, which had 2021 revenues of $8.61bn. The demerger is projected to take effect in 2023, creating an as-yet unnamed “healthcare technology company focused on wound care, oral care, healthcare IT, and biopharma filtration,” the company said.

Meanwhile, 3M’s stock price remains under pressure from potential product liability costs. In one of the largest liability cases in US legal history, the company is being sued by thousands of US military members and veterans over hearing loss allegedly caused by the faulty earplug sold by the company to American armed services.

3M, founded over 100 years ago as the Minnesota Mining and Manufacturing Co., is best known for its Scotch Tape adhesive products and N95 masks but it produces a wide array of products – from surgical equipment to hygiene supplies, auto parts, home products and of course the iconic Post-it Note.

Cited for decades by management scholars as a uniquely learning-focused, rather than strategy-focused company, 3M has long insisted that the breadth of its product line creates a fertile learning environment for in-house researchers and innovators. But Wall Street has grown impatient and pressure has mounted for the company to find demerger deals and sharpen its focus, culminating in the health care and food-safety demergers.

Neogen currently makes kits for detecting toxins, bacteria and other unhealthy things in food, as well as products for veterinary care and nutrition.

Meanwhile 3M is embroiled in a series of legal cases involving earplugs sold to the US military from about 2000 to 2015. Tens of thousands of individual lawsuits claim that the earplugs failed to work properly. Thousands of the cases have been consolidated into a proceedings before the US District Court, Northern District of Florida and “test trials” have taken place to build the final arguments and evidence for a trial that could combine all the claims into a single case.

The total number of plaintiffs involved could top 200,000

However, 3M has taken a path similar to other large companies facing substantial liabilities over a minor product line – it has announced the spin-off of the earplug-manufacturing subsidiary, which promptly commenced Chapter 11 bankruptcy proceedings.

If successful, this move will push the case from District Court into bankruptcy court and limit the liability to the larger company.

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