The Rising Influence of Rising Affluence

[DewDiligence]

3M executes the “Texas two-step” to contain earplug liability:

https://investors.3m.com/news/news-details/2022/3M-Subsidiary-Aearo-Technologies-Takes-Action-to-Efficiently-and-Equitably-Resolve-Litigation-Related-to-Combat-Arms-Earplugs/default.aspx

3M today announced it is taking action to resolve litigation related to Combat Arms Earplugs Version 2 ("Combat Arms Earplugs"). Aearo Technologies and related entities ("Aearo Technologies"), all of which are wholly-owned 3M subsidiaries, have voluntarily initiated chapter 11 proceedings seeking court supervision to help establish a trust – funded by 3M – to efficiently and equitably resolve all claims determined to be entitled to compensation.

• …Aearo Technologies was acquired by 3M in 2008 and has since operated as a wholly-owned subsidiary of 3M.

• 3M has entered into a funding agreement with Aearo Technologies to establish a trust to resolve all claims determined to be entitled to compensation, and to support Aearo Technologies as it continues to operate during the chapter 11 process.

• The claims largely relate to the previous generation Combat Arms Earplugs manufactured by Aearo Technologies, as well as discontinued Aearo Technologies mask and respirator products utilized to reduce workplace exposure to asbestos, silica, coal mine dust or occupational dusts.

• Aearo Technologies has indemnified 3M for obligations related to the claims.

• 3M has committed $1 billion to fund the trust, based on the analysis of an experienced estimator of claims in chapter 11.

• 3M has also committed an additional $240 million to fund projected related case expenses.

• 3M will provide additional funding if required under the terms of the agreement.

As a result, 3M recorded a total pre-tax charge of $1.2 billion, or $1.66 per share, and reflected it as an adjustment in arriving at its results, adjusted for special items.

The $1.2B charge is a pittance, of course, compared to the exposure if 3M had continued to litigate all of the cases without the bankruptcy filing.

If this maneuver stands up to legal scrutiny, it will be a huge win for 3M shareholders and will remove a major overhang on the share price.