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3M (MMM) to Divest Food Safety to NEOGEN in Tax-Friendly Deal

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3M Company (MMM - Free Report) yesterday announced that it reached an agreement to divest its Food Safety business to NEOGEN Corporation (NEOG - Free Report) . The combination of 3M’s food safety business and NEOGEN will create a global leader in the food safety/security market.

The deal has been structured to be tax-efficient for shareholders and 3M. The boards of directors of the companies have approved this deal.

3M’s shares gained 0.08% in the last trading session, closing at $174.72.

NEOGEN provides solutions focused on ensuring the safety of animals and foods. Its revenues were $128.3 million in the first quarter of fiscal 2022 (ended Aug 31, 2021) and earnings per share were 16 cents. The company is located in Lansing, MI, and acquired Genetic Veterinary Sciences, Inc. and Delf (UK) Ltd. in December.

Inside the Headlines

Per the deal, the enterprise value of 3M’s food safety business is $5.3 billion. The value represents 32X adjusted earnings before interest, tax, depreciation and amortization (“EBITDA") for 2022 (pre-run-rate synergies) and 27X EBITDA for 2022 (post run-rate synergies). The value of $5.3 billion includes new debt of $1 billion by 3M’s food safety business.

For execution, the deal requires 3M splitting/spinning off its food safety business to its shareholders and then merging it with NEOGEN’s wholly-owned subsidiary. Subsequently, NEOGEN will issue shares of the combined company to 3M, which will hold a 50.1% stake in the business. The rest 49.9% of the combined business will be with NEOGEN’s shareholders. Consideration of $1 billion will also be provided to 3M shareholders.

The combined business is expected to have an enterprise value of $9.3 billion (considering the closing share price of NEOGEN on Dec 13, 2021). The food safety leader will have solid product offerings, innovation capabilities, and growth opportunities in the market. It will be equipped better to expand internationally, digitize operations, and carry research and development activities.

Growth and cost synergies, to be achieved in three years of the completion of the transactions, are expected to be $30 million. Adjusted EBITDA is anticipated to be $300 million in the first year of the deal completion.

Subject to the receipt of regulatory and NEOGEN’s shareholders’ approvals and the fulfillment of customary closing conditions, the transaction is expected to be completed in the third quarter of 2022.

Zacks Rank, Estimate Trend and Price Performance

With a market capitalization of nearly $101 billion, 3M currently carries a Zacks Rank #3 (Hold). Solid product offerings, strengthening end markets, enhanced marketing capabilities and shareholders’ rewards add to the company’s attractiveness. Supply-chain woes, high raw materials costs and disturbed demand for respirators are concerning.

In the past 60 days, the Zacks Consensus Estimate for 3M’s earnings have increased 0.9% to $9.86 for 2021 and decreased 1.1% to $10.50 for 2022. The consensus estimate for the fourth quarter of 2021 decreased 5.5% to $2.06 in the past couple of months.

3M Company Price and Consensus


3M Company Price and Consensus

3M Company price-consensus-chart | 3M Company Quote

In the past three months, 3M’s shares have lost 4.4% compared with the industry’s decline of 10.4%.


Zacks Investment ResearchImage Source: Zacks Investment Research


Better-Ranked Stocks in the Industry

Two stocks in the industry, with better ranks than 3M, are discussed below.

Crane Co. (CR - Free Report) presently carries a Zacks Rank #2 (Buy). Its earnings surprise in the last reported quarter was 37.96%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Crane have gained 5.6% in the past three months. The Zacks Consensus Estimate for CR’s earnings has increased 5.8% for 2021 and 4% for 2022 in the past 60 days.

ITT Inc. (ITT - Free Report) results were better than expected in the last reported quarter, with an earnings surprise of 6.45%. The company currently carries a Zacks Rank #2.

Shares of ITT have gained 12% in the past three months. The Zacks Consensus Estimate for ITT’s earnings has risen 1.8% for 2021 and 2% for 2022 in the past 60 days.

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