3M Encounters Further Legal Challenges Following $6 Billion Earplug Settlement
Although 3M is on the brink of concluding the most significant mass tort litigation in U.S. history with a $6.01 billion settlement involving around 250,000 plaintiffs, the company remains entangled in other complex legal entanglements that come at a considerable cost.
The company made an announcement on Tuesday regarding the settlement, which addresses claims from military veterans and service members who asserted that 3M produced defective earplugs responsible for hearing loss. This resolution holds significant weight in offering accountability for 3M while providing fair compensation to veterans who were affected. Bryan Aylstock, the court-appointed lead plaintiffs' counsel, expressed confidence that the settlement would garner substantial support for its just and deserved compensation aspect.
While the settlement provides relief for one major legal concern, 3M is still awaiting the approval of its $10.3 billion settlement aimed at addressing water utilities' claims regarding drinking water contamination caused by substances referred to as "forever chemicals." Nonetheless, this settlement is encountering resistance from over 20 states, and it solely encompasses a specific segment of liabilities. It does not cover an expanding list of states that have taken legal action against 3M, nor does it encompass personal injury claims.
The financial firm Capstone has estimated that 3M's overall risk tied to PFAS (per- and polyfluoroalkyl substances) liability amounts to nearly $30 billion, surpassing the scope of the existing settlements. Beyond the U.S., 3M has faced legal actions from countries such as the Netherlands and Belgium concerning PFAS contamination.
In Europe, a decision is pending on whether to ban PFAS chemicals altogether. Similarly, in the U.S., the Environmental Protection Agency (EPA) is deliberating the classification of PFAS as a hazardous chemical. This could lead to increased testing and a deeper understanding of the extent of the presence of this toxic substance.
In order to fund the settlements, 3M has implemented cost-cutting measures, including the elimination of 8,500 jobs, which constitutes 10% of its workforce, throughout this year. Additionally, the industrial giant plans to separate its successful health-care division by the conclusion of 2023 or early 2024. Analyst Stephen Tusa from JPMorgan anticipates that this transaction could generate $7 billion to $9 billion in cash flows for 3M.
The future of 3M's dividend, which currently offers investors a 6.1% return, has sparked substantial debate. Financial institutions such as JPMorgan, UBS, and RBC have raised concerns about the sustainability of 3M's dividend. UBS analysts, for instance, indicated that they anticipate a dividend reduction from 3M after the healthcare division spin-off.
The timeline for the proposed business transaction remains on course, with 3M recently announcing that Bryan Hanson, the CEO of Zimmer Biomet, will take on the role of CEO for its health-care business.
