3M (MMM) healthcare spin-off sees hurdle from veterans

3M Company MMM faces new problems as veterans sue the company to block its planned healthcare spinoff, as Reuters recently reported. Veterans who accused the company of selling faulty combat earplugs now say the health fallout could leave the company without sufficient cash reserves to compensate them for damage caused by the faulty earplugs.

In a lawsuit filed in Pensacola, Fla., veterans said the spin-off was ‘no more than a formality’ to ‘lock up’ assets, flouting a Florida law, which prevents debtors from fraudulently transferring assets to protect themselves from creditors.

With more than 230,000 lawsuits filed by veterans over defective earplugs, 3M’s total liabilities could be $82 billion or more. The plaintiffs argue that the company already has limited resources after spending a substantial amount on dividends and share buybacks. With the health fallout, he won’t have enough resources to deal with the liabilities.

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3M has been fighting legal battles related to its earplugs for years. While veterans claim combat earplugs caused them hearing loss, 3M argues that the earplugs provided soldiers with protection while allowing them to hear on the battlefield.

In July, 3M filed for bankruptcy its subsidiary, Aearo Technologies LLC, which developed combat arms earplugs for the US military, to protect itself from lawsuits. Simultaneously, MMM announced the spin-off of its healthcare business into a separate public company. The segment generated $2.2 billion in revenue in the second quarter of 2022. Despite Aeroro’s bankruptcy, in August a U.S. judge denied 3M a preliminary injunction for its more than 230,000 lawsuits.

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3M wears a Zacks rank #3 (Hold).

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