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3M's (MMM) Healthcare Spinoff Sees Roadblock from Veterans

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3M Company (MMM - Free Report) faces fresh troubles as veterans sue the company to block its planned spinoff of the healthcare business, as reported by Reuters recently. The veterans who have accused the company of selling defective combat earplugs now claim that the healthcare spinoff could leave the company without sufficient cash reserves to compensate them for the damages caused by the faulty earplugs.

In a complaint filed in Pensacola, FL, veterans said that the spinoff was "little more than a formalism" to "wall off" 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 related to defective earplugs, 3M’s total liabilities might stand at $82 billion or more. Plaintiffs argue that the company already has limited resources after spending a substantial chunk on dividends and share buybacks. With the healthcare spinoff, it will not be left with sufficient resources to meet the liabilities.

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

In July, 3M put its subsidiary, Aearo Technologies LLC, which developed the combat arms earplugs to be supplied to the U.S. military, into bankruptcy as a way to shield itself from the lawsuits. Simultaneously, MMM announced the spinoff of its healthcare business into a separate public company. The segment generated revenues of $2.2 billion in the second quarter of 2022.  Despite Aearo’s bankruptcy, in August, a U.S. judge denied a preliminary injunction to 3M for its more than 230,000 lawsuits.

Zacks Rank & Key Picks

3M carries a Zacks Rank #3 (Hold).

Some better-ranked stocks within the Conglomerates sector are as follows:

Carlisle Companies (CSL - Free Report) sports a Zacks Rank #1 (Strong Buy). CSL pulled off a trailing four-quarter earnings surprise of 28%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

Carlisle Companies has an estimated earnings growth rate of 114.4% for the current year. Shares of CSL have rallied more than 19% in the year-to-date period.

Griffon Corporation (GFF - Free Report) carries a Zacks Rank #2 (Buy). GFF delivered a trailing four-quarter earnings surprise of 104.6%, on average.

Griffon has an estimated earnings growth rate of 124.1% for the current year. Shares of GFF have gained more than 11% so far this year.

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