3M is set to end the largest mass tort litigation in U.S. history, but it still faces other costly legal issues.
The company announced on Tuesday that it has settled its dispute with about 250,000 plaintiffs in a $6.01 billion settlement. Veterans and the military claimed that 3M made faulty earplugs that caused hearing loss.
“I am confident that this $6 billion+ settlement will receive full and overwhelming support, not only because it holds 3M accountable, but more importantly, because it provides just and deserved compensation to our veterans. “, said Bryan Aylstock, the court-appointed official. plaintiffs’ attorney, told CNBC via email.
Even though news of the settlement alleviates a significant legal issue, 3M is still awaiting approval of its $10.3 billion settlement with water utilities over drinking water contaminated with substances known as eternal chemicals.
The settlement, which faces refusal from more than 20 states, covers only a subset of liabilities and does not include a growing list of states that have sued 3M. It also does not include bodily injury claims.
Capstone estimates that 3M’s total PFAS liability exposure is nearly $30 billion, beyond existing regulations.
3M has also faced lawsuits in countries like the Netherlands and Belgium for PFAS contamination. Europe continues to ponder whether or not to ban PFAS chemicals. In the United States, the Environmental Protection Agency is considering labeling PFAS as hazardous chemicals. Experts say this could lead to more testing and a better understanding of the toxic chemical’s ubiquity.
To finance its settlements, 3M has cut costs, including cutting 8,500 jobs, or 10% of its workforce, this year.
The industrial giant also plans to spin off its highly successful healthcare business by late 2023 or early 2024. JPMorgan analyst Stephen Tusa expects the deal to raise between $7 billion and $9 billion in cash flow for 3M.
Much debate has centered on 3M’s dividend, which pays investors 6.1%. JPMorgan, UBS and RBC are among the companies on Wall Street that have mentioned that 3M’s dividend is under threat. “We expect 3M to reduce its dividend following the split of the Healthcare unit,” UBS analysts wrote in a note to clients on Monday.
The timing of the business transaction appears to be on track, with 3M announcing last week that Zimmer Biomet CEO Bryan Hanson would join the company as CEO of its healthcare business.
World Headquarters of the 3M Company. in Maplewood, Minnesota.
Michael Siluk | Universal Images Group | Getty Images
In that same announcement, it was revealed that the current chief financial officer, Monish Patolawala, had added chairman to his title. In a note to clients, RBC analyst Deane Dray said “this arguably positions him as the heir apparent to CEO Mike Roman.”
Roman has been leading 3M for five years. This includes the Covid pandemic, during which the company’s shortage of N95 respirators quickly turned into a global crisis. He also had to oversee the company through litigation over earplugs and PFAS, as well as protests from a prominent shareholder over the stock’s underperformance.
3M shares have fallen 48% since he was named CEO in 2018. Over the same period, the XLI Industrials ETF increased by 50%.
The stock rose more than 1% on Tuesday.