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You never know if a spinoff is going to end up a success like Law & Order: Special Victims Unit, Frasier, and Better Call Saul or a trivia question like Joey, That 80s Show, and Joanie Loves Chachi.
On Tuesday, US manufacturing conglomerate 3M became the latest corporate to try its hand at the concept, announcing it will spin off its healthcare unit as a public company. In the corporate world, the goal is to boost shareholder value, of course, Wall Street's version of ratings.
With 60,000 products ranging from electronic components to dental adhesives to Post-it notes, Minneapolis-based 3M has more variety than your local Baskin Robbins. But the wide range of product lines left the company exposed to supply chain delays and inflation, with higher costs weighing on earnings. In June, CEO Mike Roman admitted it was a "mistake" when the company earlier this year downplayed rising costs, which could end up reaching $350 million to $450 million this year.
Then there is 3M's Aearo Technologies subsidiary, which said Tuesday that it is declaring bankruptcy and putting $1 billion in a trust to settle claims by 290,000 active duty military personnel and veterans who allege they suffered hearing damage from substandard Combat Arms earplugs.
The spinoff of the healthcare unit will help 3M simplify its corporate structure as it sorts out a path forward:
- The heath care unit made $8.6 billion in sales last year, nearly a quarter of 3M's revenue. The division manufactures surgical supplies, bandages, skin adhesives, oral aligners, air purifiers, optical lenses and many more -- 3M will keep a 19.9% in the business, which Bloomberg Intelligence analysts said could be worth up to $45 billion, and will sell it off over time.
- The healthcare unit, however, is mired in its own legal fracas, or actually more like 6,000 of them. Its Bair Hugger surgical warming system is subject to almost 6,000 lawsuits related to surgical-site infections.
Second Time Around: 3M, already in the process of spinning off its food safety unit so it can merge with Neogen, expects the healthcare unit to be independent by the end of next year.