The long-planned spinout of 3M’s healthcare business is still set to be completed in the near future, albeit somewhat later than originally expected, according to a company update this week.
When the spinout was first announced in the summer of 2022, 3M suggested that the transaction would be wrapped up by the end of 2023. Then, in an earnings call earlier this year, Chief Financial Officer Monish Patolawala said the timeline could stretch into the first quarter of 2024 as 3M worked to get the necessary approvals from the IRS, other government agencies and the board to allow the transaction to be a tax-free one.
This week, in its third-quarter earnings report, 3M gave itself even more wiggle room, saying that the spinout’s completion is now expected sometime in the first half of next year.
In an accompanying call discussing the results, CEO Mike Roman said the spinout process was “progressing,” singling out recent leadership appointments during the quarter that tapped former Zimmer Biomet CEO Bryan Hanson to lead the soon-to-separate segment and Carrie Cox to chair its board.
Roman went on to say that while 3M doesn’t foresee “any hurdles” it’ll have to overcome to complete the spinout, there’s still “a lot of work to do.” That includes continuing to build out the executive and board teams around Hanson and Cox, per Roman, plus “working through system changes, standing up legal entities, as well as all the regulatory filings that we need to do,” according to Patolawala, who’s leading the separation process.
“The team has given us great confidence that we’re going to continue to progress, and we’re on track for the timing that we talked about in early 2024 and see ourselves getting there successfully,” Roman said. “Much of it, as we talked about, is about getting ready for the spin of healthcare. It’s also about getting ready to stand up 3M as a standalone company with the healthcare spin being completed. So we’re putting focus there.”
Roman also discussed the future of the healthcare business after the spinout is complete; 3M has previously said that while it will initially retain a stake of just under 20% in the newly created healthcare company, it plans to sell off that position over time.
“Going back to how did we think about the strategy to spin out healthcare, one of the important questions was, ‘Do we see healthcare as a leading healthcare technology company attractive to shareholders with a great future?’ And [for] that portfolio of businesses, the answer for us was yes and that the best way to create that value was to stand it up as a standalone company,” he said.
“Now it’s going to be an independent company. We’ll have a new CEO and a board, and they will develop the strategies for how they think about creating the greatest value, driving growth for that business, thinking about how to really manage that portfolio of businesses as they go forward,” he continued. “So we see it as being ready to stand forward as a leader and are really confident in the leadership that will take the company as a standalone.”
The updates on the spinout came as 3M reported falling revenues across the entire company. Net sales weighed in at $8.3 billion, down 3.6% from the same time last year.
Though the healthcare segment fared best of 3M’s four core businesses, it still registered year-over-year declines. Its quarterly sales of just under $2.1 billion marked a drop of 0.2%, while its year-to-date sales fell 3.5% after raking in about $6.2 billion for the first nine months of the year, compared to about $6.4 billion a year prior.
Meanwhile, the manufacturing giant fell even further into the red: It reported a net loss of more than $2 billion for the quarter, bringing the year-to-date loss to more than $7.9 billion. After the first nine months of 2022, in contrast, 3M had reported positive profits of $5.2 billion.
That decline was boosted in part by the $4.2 billion pretax charge that 3M took during the quarter as part of the recent settlement of a massive class-action lawsuit over allegedly defective earplugs that were sold to the U.S. military. In total, 3M has agreed to pay out just over $6 billion in a combination of cash and stock by 2029.