ST. PAUL, Minn., July 26, 2022 — 3M (NYSE: MMM), a global leader in material science innovation, has officially announced its strategic intent to spin off its Health Care business. This significant move will establish two independent, publicly traded companies, each poised to capitalize on unique growth opportunities within their respective industries. The New 3M will continue its legacy as a material science innovator, while the standalone Health Care entity will emerge as a leading global diversified healthcare technology company, with a strong emphasis on areas including oral care, wound care, healthcare IT, and biopharma filtration.
According to Mike Roman, 3M chairman and chief executive officer, this decision reflects a commitment to proactive portfolio management and long-term value creation. “Spinning off our Health Care business is a decisive step forward in our growth strategy,” Roman stated. “This action will result in two well-capitalized, world-class companies that are better positioned to pursue their distinct strategic priorities and deliver enhanced value to both customers and shareholders.”
The strategic rationale behind the spin-off is rooted in the belief that as independent entities, both New 3M and Health Care will benefit from:
- Sharpened Agility and Focus: Each company will be able to concentrate resources and management attention on its specific market opportunities and challenges, leading to greater responsiveness and efficiency.
- Tailored Capital Allocation: Independent structures will allow for customized investment strategies, ensuring that capital is deployed in the most effective manner to fuel innovation and growth within each sector.
- Distinct Investment Profiles: The two separate companies will present compelling investment propositions to different investor bases, potentially attracting specialized investors interested in material science or healthcare technology.
- Specialized Leadership: Each entity will be guided by dedicated boards and management teams equipped with deep industry expertise and a proven track record of driving value creation.
New 3M: Continuing Material Science Innovation
The New 3M, generating $26.8 billion in sales in 2021, will leverage its foundational strengths in science and technology, manufacturing excellence, global reach, and iconic brands to maintain its leadership in material science innovation. The company will continue to serve a diverse range of industrial and consumer markets, capitalizing on global megatrends such as advancements in electronics, safety solutions, the evolution of mobility, increasing digitization, home improvement trends, and the growing focus on sustainability.
Committed to profitable growth and strong cash flow generation, New 3M will prioritize strategic investments in key areas like growth initiatives, productivity enhancements, and sustainability projects. The company also intends to maintain its commitment to returning capital to shareholders and upholding a robust balance sheet. 3M has indicated that its capital allocation priorities will remain consistent until the separation is finalized.
Health Care: A Leader in Diversified Health Care Technology, Including Oral Care
The standalone Health Care business, with approximately $8.61 billion in sales in 2021, is set to become a leading global diversified healthcare technology company. Its portfolio encompasses a wide array of trusted brands and global capabilities, holding leadership positions in attractive and growing market segments. Key areas of focus include wound care solutions, innovative oral care products, healthcare IT systems, and biopharmaceutical filtration technologies. With a dedicated focus, Health Care aims to accelerate industry-leading innovation, contributing to better, smarter, and safer healthcare outcomes for patients worldwide.
Oral care is a critical component of the Health Care business. 3M’s oral care division is recognized for its advanced dental and orthodontic solutions used by professionals and patients globally. As a standalone entity, the Health Care business, including its robust oral care segment, will be strategically positioned to enhance its market presence and further develop its offerings, potentially through targeted marketing programs and innovations.
3M Logo
The Health Care business is projected to leverage its strong profitability and cash flow to pursue its strategic objectives with agility and focus. This includes potential investments in research and development within its core areas like oral care, allowing for the creation of more advanced and patient-centric products and solutions. A dedicated marketing program for 3M oral care, as part of this independent Health Care entity, could see increased investment and strategic direction, aiming to further solidify its market leadership and brand recognition in the competitive global oral care landscape.
Transaction Details and Timeline
The financial structure of the spin-off anticipates Health Care launching with a net leverage of approximately 3.0x – 3.5x EBITDA, strategically planned for rapid deleveraging post-separation. New 3M will initially retain a 19.9% stake in Health Care, intended for monetization over time, further enhancing shareholder value.
The spin-off is structured to be tax-free for U.S. federal income tax purposes and is expected to be completed by the end of 2023. The transaction is contingent upon standard closing conditions, including final approval from the 3M Board of Directors, the effectiveness of a Form 10 registration statement with the U.S. Securities and Exchange Commission, receipt of necessary tax opinions and rulings, successful financing arrangements, and other required regulatory clearances.
It is important to note that 3M will retain liabilities associated with non-Health Care related litigation, including matters related to Combat Arms Earplugs and PFAS.
Advisory and Next Steps
3M has engaged Goldman Sachs & Co and PJT Partners as financial advisors, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel to facilitate the spin-off process.
Concurrently, 3M is progressing with the previously announced separation of its Food Safety business, aiming for completion through a split-off transaction targeted for September 1, 2022, pending customary approvals and conditions.
Addressing Combat Arms Earplugs Litigation
In a parallel announcement, 3M addressed its strategy to efficiently and equitably resolve litigation related to Combat Arms Earplugs. Aearo Technologies and related subsidiaries, wholly-owned by 3M, have initiated voluntary chapter 11 proceedings. This strategic shift is intended to streamline the resolution of Combat Arms Earplugs claims, ensuring a more efficient and equitable process for all involved parties, including plaintiffs entitled to compensation. 3M and its other business operations are not included in this chapter 11 filing and will continue to operate as usual.
For further details on the Combat Arms Earplugs litigation resolution and other related announcements, please refer to the 3M press release page accessible here.
Q2 2022 Financial Results and Investor Conference Call
Alongside these strategic announcements, 3M released its second-quarter 2022 financial results and updated its full-year 2022 outlook.
An investor teleconference was conducted at 9 a.m. EDT (8 a.m. CDT) today. Replays of the webcast and telephone conference are available for investors seeking further information.
| 1 | Includes Food Safety (~$0.4B), expected to be divested by Sept. 1, 2022, that will no longer be part of the Health Care business. |
Forward-Looking Statements
This announcement contains forward-looking statements subject to risks and uncertainties, as detailed in 3M’s reports and filings. Factors that could cause actual results to differ are outlined in 3M’s reports, including the Annual Report on Form 10-K and quarterly reports on Form 10-Q. 3M undertakes no obligation to update these statements based on new information or future developments.
| 3M Company and Subsidiaries SUPPLEMENTAL FINANCIAL INFORMATION NON-GAAP MEASURES (Unaudited) |
|---|
| Year ended December 31, 2021 (millions) |
| Total Net Sales |
| (a) Includes Food Safety revenue of $368M, which is expected to be divested by Sept. 1, 2022, and therefore will no longer be part of the Health Care business. | |
| (b) New 3M net sales, a non-GAAP measure, is not defined under U.S. GAAP and, therefore, should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. 3M defines “New 3M” net sales as consolidated 3M Company net sales minus net sales of its Health Care business segment. 3M announced it will spin-off its Health Care business. The Company believes New 3M net sales information is meaningful to investors as they consider how the spin off of the Health Care business may impact 3M’s operating results. |
Investor Relations Contacts:
Bruce Jermeland (651) 733-1807
Diane Farrow (612) 202-2449
