Back to top

Image: Bigstock

Neogen (NEOG) Finalizes Food Safety Business Merger With 3M

Read MoreHide Full Article

Neogen Corporation (NEOG - Free Report) recently completed the merger with 3M Company’s (MMM - Free Report) Food Safety business, as previously announced on Dec 14, 2021. This merger is anticipated to create an innovative leader in the food safety sector with a comprehensive product range and a strategic focus on the category's long-term growth prospects.

The former Food Safety division of 3M is a renowned supplier of food safety testing solutions. To support multiple industries within food and beverage, the business offers a wide range of food safety testing solutions that allow producers to combat and guard consumers against foodborne illnesses. Furthermore, the business has established a significant global presence with products used in more than 60 countries and a diverse revenue base of more than 100,000 end-user customers.

The combination of Neogen and 3M's Food Safety division also brings forth a market leader with a broader geographic reach, innovative product offerings, digitization capabilities and financial flexibility. The merger would take advantage of the current strong growth trends within sustainability, food safety and supply chain integrity.

Terms of the Merger

The terms of the definitive agreements involve a tax-free "Reverse Morris Trust" structure and require current Neogen shareholders to retain around 49.9% of the combined company. At the same time, shareholders at 3M are stated to gain roughly 50.1% of the combined company. Shortly after close of the merger, two additional Directors will be appointed to Neogen's Board of Directors, according to the terms of the agreement.

Zacks Investment Research
Image Source: Zacks Investment Research

Per Neogen’s management, both organizations share a strong focus on being a leader in the creation of food and animal safety solutions. This merger will hence enable the companies to be at the forefront of food safety and digitization together, further placing Neogen as an innovative global industry leader.

Industry Prospects

Per a report by MarketsandMarkets, the food safety testing market is expected to see a CAGR of 7.9% during 2021-2026. The growing prevalence of foodborne illnesses primarily due to the consumption of food contaminated with mycotoxin, pathogens, or yeasts and molds, and the rising demand for convenience and packaged food products, can be attributable to the market growth.

Given the market prospects, Neogen’s merger with 3M's Food Safety business seems strategic.

Other Notable Developments

In July 2022, Neogen acquired Thai-Neo Biotech Co., Ltd., a longstanding distributor of its food safety products in Bangkok, Thailand. This acquisition complements Neogen’s operations in India, China, and Australia, expanding access to the fast-growing Asia/Pacific food safety market. However, the terms of the agreement have been kept under wraps.

In June 2022, the company gained approval from the Natural and Non-Prescriptive Health Products Directorate Branch of Health Canada to distribute Neogen Viroxide Super across the country. The new biosecurity solution is effective against various industry-relevant bacteria and viruses, including COVID-19 and avian influenza. It allows for rapid broad-spectrum disinfection as part of a comprehensive biosecurity program.

Price Performance

The stock has underperformed its industry in the past year. The company’s shares have lost 58.5% against the industry’s 51.8% decline.

Zacks Rank and Key Picks

Currently, NEOGEN carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space that investors can consider are ShockWave Medical, Inc. (SWAV - Free Report) and McKesson Corporation (MCK - Free Report) .

ShockWave Medical has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ShockWave Medical has outperformed its industry in the past year. SWAV has gained 24% against the industry’s 33.9% fall over the past year.

McKesson has an estimated long-term growth rate of 9.9%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2 (Buy).

McKesson has outperformed its industry in the past year. MCK has gained 77% against the industry’s 14.8% fall.

Published in