The Aearo issue is not the only legal challenge 3M has faced in recent months. Company Size: With a market capitalization of more than $100 billion, even with significant legal liabilities, the company has the size and scope to absorb the negative impact and grow in the future. Undoubtedly, legal uncertainty poses significant challenges for 3M`s management in the short term. Investors are right to ask how they take into account potential liability risks and what this means for 3M`s future earnings. But now, the recent price drop raises the following questions: Is legal uncertainty temporary and is it time to consider buying/adding positions? 3M faces a similar set of legal hurdles, including about $33 billion in potential liability for court battles over earplugs and chemical compounds called per- and polyfluoroalkyl substances, or PFAS. The latter, which is found in drinking water in various communities, is now one of the largest multi-district disputes in U.S. history. But after a bankruptcy judge rejected a key aspect of its legal strategy, 3M faces an uphill battle to find a way to control its costs, which result from 230,000 lawsuits on behalf of veterans, the largest multi-district litigation in U.S. history. There are few companies with the same iconic history that 3M (MMM-0.10%), formerly Minnesota Mining and Manufacturing, has to offer. But a good story, including more than six decades of steady annual dividend increases, is not enough to cause investors to overlook some of the recent troubling stocks. And there`s a good reason for that when you look at the $22.5 million legal loss that 3M just suffered.
3M, the post-it and tape maker, plans to cut jobs as part of a cost-cutting campaign as its legal problems worsen, according to a Bloomberg report. 3M is facing a massive number of lawsuits for its earplugs, according to a Bloomberg report. The lawsuits are being filed by veterans who attribute their hearing problems to earplugs, according to the report. Editor`s Note: After writing this article, but before it was published, Reuters reported that two U.S. Military veterans received $110 million from a jury in a case involving combat earplugs sold by 3M. The author`s views on the long-term impact of 3M`s ongoing legal issues will not be altered by the recent judicial loss. It is well known that 3M has a proven track record of increasing profits and other fundamentals over the past decade or more, and that with enough time, legal uncertainties will eventually be resolved. Undoubtedly, the result could be very unfavorable. But the question will always be resolved. The former federal prosecutor played a key role in resolving a number of legal and compliance issues for about six years as America`s top lawyer. Last month, the Justice Department accused the bank of violating an agreement to defer prosecution.
The 3M conglomerate faces legal risks to its shares. Investors` approach has been to sell first and ask questions later, and Wall Street is not resisting that reaction. The chance to win on appeal: the legal process is underway and, without a doubt, armies of lawyers on all sides of the argument are active in defending clients. It is possible that 3M will prevail in future appeals or at least change financial decisions. The profit engines are intact – regardless of legal uncertainties: Covid and Covid variants and other infectious diseases will continue to cause great concern to employers, governments and individuals. 3M is well positioned in the field of personal protective equipment to meet this need. Rates of diabetes and chronic diseases are on the rise worldwide. These medical issues create a demand for improved medical associations and medical software to improve case management. And industrial adhesive and belt product lines are likely to have tailwinds as companies rethink their processes and innovate in the new environment. These trends, combined with 3M`s patent legal protection, bode well for the sustainability of long-term profits.
Reich now reports to Chief Legal Officer Kevin Rhodes, a former Kirkland & Ellis partner who spent the past 20 years with the company. Rhodes replaced Ivan Fong earlier this year, who left 3M after a decade as a leading lawyer to become the new general counsel for medical device maker Medtronic PLC. On Friday, U.S. Bankruptcy Court Jeffrey Graham essentially rejected an attempt by 3M to take legal liability related to faulty earplugs sold to the military by a subsidiary of 3M (ticker: MMM) in bankruptcy court. This would have limited the amount of payments from the earplug dispute. The legal situation weighed on the share price, with shares falling more than 17% in the past month. Today, 3M is facing the current legal uncertainties weighing on its share price. If that issue isn`t on your radar, the company was fined $110 million by a Florida jury in late January due to concerns about earplugs and alleged damage caused by defective products. The biggest risk to this assessment is certainly the legal commitment related to earplugs and PFAS chemical claims.
Jury decisions that go far beyond what is expected could make a big difference in future returns. Reich is working with Kevin Rhodes, 3M`s new director of legal affairs, who took over in February after Ivan Fong, longtime head of the company`s legal department, resigned for the senior legal position at medical device maker Medtronic PLC. The 3M conglomerate faces legal risks to its shares. And that really goes to the heart of the investment decision here. The stock looks very attractive to dividend investors if 3M`s legal fees from earplugs and other legal issues it faces are reasonable. If these costs are not reasonable, there is a very real potential for a dividend reduction. This brings us to the size and financial strength of 3M. It has a market capitalization of about $100 billion and an investment fitness record. Access to capital is unlikely to be a problem, provided the final cost is not high. In other words, outside of the worst-case scenario, it`s likely that 3M will be able to handle the issues it faces. 3M Co., a conglomerate with potential legal liabilities estimated at $33 billion, has hired former Deutsche Bank AG CEO Steven Reich as chief legal counsel for enterprise risk management.
Both Seo and Reich are working with Kevin Rhodes, 3M`s new director of legal affairs, who took office in February after Ivan Fong, longtime head of the company`s legal department, resigned to take the high-level legal position at medical device maker Medtronic PLC. There are no free lunches on Wall Street, as the saying goes, so you have to weigh the positive and negative aspects of every investment you make. Right now, 3M looks historically cheap considering its rich yield. There are reasons for that, and it is difficult to understand what is going to happen from here, given the vagaries of legal issues. However, if you`re a half-full type of glass, it`s probably worth taking a look at 3M today. Just go inside and know that there could be more turbulence in the share price if it wins and loses more individual cases. Eventually, however, this is expected to pass, and given the size and financial strength of the company, it`s likely that 3M will survive and continue to thrive. It`s hard to say how big the problem is with these legal issues, as litigation is ongoing and the company is pretty low-key about what`s going on. To be fair, these are legal issues, so management can`t be too talkative. Plus, lawsuits need time to make their way, so there`s no silver bullet here. If you buy 3M today, you must be prepared to suffer from some uncertainty for a relatively long period of time.
We, patient value investors, like to look at investments over years and decades, not short-term. Assuming 3M normalizes and continues to expand its long-standing track record of earnings growth, what is 3M`s stock worth if the company goes through this period of legal uncertainty? Kirkland has played a role in about 5 percent of the cases 3M has been involved in in federal court over the past five years, according to Bloomberg Law data. Greene Espel of Minneapolis appeared most often for 3M during this period with over 41%, followed by Mayer Brown with over 10% and Ice Miller of Indianapolis with around 5%. Traditionally, 3M is a slow, „stable“ company and a stock. The move comes about three weeks after 3M announced plans to split its healthcare unit into a publicly traded company. The spin-off is expected to be completed by the end of 2023 and the company would focus on wound care, health informatics, oral care and biopharmafiltration. Product innovation generates sustainable margins: the R&D department has developed a remarkable range of products, and the company rarely grants licenses. The result is that the company is able to maintain healthy margins even in an inflationary environment. In addition, the company is well positioned in higher-margin areas such as healthcare to capitalize on demographics in the future.