3M Announces a Split. How Does This Impact Investors

3M is the latest conglomerate to split itself up in order to create more value for its shareholders. How will this impact investors?
July 26, 2022
Unlock Free Stock Insights + 50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

3M (NYSE: MMM) today announced that it plans to spin off its health care business to create two public companies. This will allow both companies to achieve their planned objectives simultaneously. New 3M will continue to operate its traditional business, such as office supplies meanwhile, Health Care will focus on oral care, biopharma filtration, and healthcare IT. Chairman and CEO Mike Roman said that the plan was to create value for both customers and shareholders. He then declared:

"Disciplined portfolio management is a hallmark of our growth strategy. Our management team and board continually evaluate the strategic options that will best drive long-term sustainable growth and value."

What are the details of the transaction?

Health Care is forecast to be spun off with a net leverage ratio of 3.0-3.5 times EBITDA while being positioned for rapid deleveraging. New 3M will also retain a 19.90% holding in Health Care, continuing shareholders' exposure to the fast-growing health sector. 

The company expects the transaction to be finalized by the end of 2023 and for the spin-off to be tax-free for U.S. federal income tax purposes. The deal is still subject to the approval of the Internal Revenue Service, the board of directors, and the U.S. Securities and Exchange Commission. 

What does this mean for investors?

This break up of the over 100-year-old company will have several implications for current shareholders and those who were debating on investing in the company.

Firstly, 3M's healthcare business reported sales of $8.6 billion last year, representing roughly 24% of the company's total revenue. Once it goes public, it will be a smaller, more agile company without the additional slow-moving baggage of 3M's other businesses. The new company will be able to focus entirely on its niche without fears of being overruled by its parent company. Therefore allowing it more freedom to pursue its full growth potential. It may also be more attractive to investors who liked the segment but didn't want to invest in a conglomerate like 3M.

Secondly, while shareholders lose the majority of their holding in Health Care, they still own about 20% of the company. Its new independence should allow it to trade at a higher earnings multiple and generate better growth rates, increasing the value of New 3M's holding. It will also allow New 3M to focus on the business segments it is an expert in. This will improve its capital allocation strategies and reduce the complicated management structure that plagues conglomerates. 

Thirdly, the separate profiles of each business will make them more attractive to different investor bases rather than trying to please all investors. This should result in less disappointing announcements as the types of investors in each company will be clear, allowing each to tailor to their specific clientele's needs better.


Unlock Free Stock Insights +50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

The Home of Successful Investing.

© 2024 MyWallSt Ltd. All rights reserved.


Services

Podcast

Social

Company

Support

Resources


This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.