3M expected to net up to $12 billion with health care spinoff, ratings agency says

3M is poised to raise $7 billion from the spinoff of its health care division later this year, with the proceeds largely paying down recent legal settlements.

This projection comes from a new report by Fitch, a major ratings agency. Maplewood-based 3M is expected to raise an additional $3.5 to $5 billion from the spinoff over the next five years. 3M plans to hold a roughly 20% stake in the company — which will be named Solventum — and sell it off over time.

The influx of cash will be timely as 3M has promised to pay up to $19 billion in legal settlements over PFAS and Combat Arms ear plugs, much of which will be paid out over the next four years. Fitch anticipates the company will be able to manage additional settlements or legal costs as they arise after spinoff proceeds are spent.

“3M’s financial flexibility is underpinned by its strong operating cash flows, expected health care spin proceeds and high cash balance, which provides adequate capacity to address legal liabilities as they develop,” the agency said in giving the company an A- Issuer Default Rating, which signals a fairly high level of confidence in the company’s near-term future.

Analysts expect there could be billions more in settlements in the years ahead given other PFAS litigation and potential action from the U.S. Environmental Protection Agency.

“By our math, 3M faces nearly $10 billion in incremental PFAS-related legal liabilities,” Morningstar analyst Joshua Aguilar wrote last year, though other estimates are as high as $30 billion. “We think 3M can continue to spread legal payments in the future and assume somewhat similar outcomes to its major 2023 settlements.”

Investors have been less confident and punished 3M’s stock recently after the company offered up a profit forecast slightly below Wall Street expectations.

CEO Mike Roman said in an interview earlier this month the company’s innovation focus puts it in a good position to “drive growth in margins and earnings and value for shareholders.”

“There’s never been a better time for material science — the world needs it,” he said.

After the spinoff, Fitch expects 3M’s profit margin, before interest, taxes and depreciation, to be in a similar range it is today.

Solventum will be the 17th largest med-tech company in the world based on recent annual revenue of $8.3 billion, according to an industry publication.