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Will 3M Sell Its Food Safety Business for $3.5 Billion?

By Neha Chamaria – Sep 23, 2020 at 1:13PM

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Selling the unit could lift the healthcare division's prospects.

3M (MMM 0.81%), better known for its Post-it notes, Scotch tapes, and now N95 respirator masks, is exploring the sale of its food safety unit, according to a Bloomberg report this week. The report suggests 3M could raise as much as $3.5 billion from the divestiture.

That's nearly 10 times the revenue that the unit generated in 2019, which means 3M would pull off a big deal if it can bag anything even close to $3.5 billion.

A food quality control expert inspecting groceries.

Image source: Getty Images.

Its food safety business primarily sells products like kits that enable food processors to test the microbiological quality of food, including for allergens. Food safety is part of 3M's broader healthcare business group and contributed roughly 5% to the group and only 1% to 3M's total sales in 2019.

Sales from food safety declined 7% during 3M's second quarter, with management saying that was due to the closure of food processing plants to protect the safety of workers. For the six months ended June 30, sales were flat year over year at around $170 million. That made the unit the second-smallest contributor to the healthcare segment after drug delivery, a business 3M recently sold off.

Healthcare is one of the four broad segments 3M operates, the other three being safety and industrials, transportation and electronics, and consumer. Healthcare was its third-largest segment in 2019, generating $7.4 billion in revenue and contributing almost a quarter to 3M's total sales.

But it has been under scrutiny lately, and management is striving to reshuffle its healthcare portfolio to focus on core high-margin products. Just this past May, 3M sold off its drug delivery business for roughly $650 million.

The good news is that healthcare emerged as 3M's strongest segment in the past two months, reporting solid double-digit growth in sales even as its other segments saw sales decline or rise barely by mid-single-digit percentages.  

Amid this encouraging trend, the sale of the food safety business shouldn't come as a surprise given its tiny contribution to 3M's healthcare group and total revenue.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.

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