3M earbud unit files for bankruptcy amid lawsuits from military veterans – Financial Times | Vette Leader

3M has placed a subsidiary facing billions of dollars in legal claims over allegedly faulty military earbuds under Chapter 11 bankruptcy protection and announced the spin-off of its healthcare unit to unlock shareholder value.

More than 100,000 US military veterans have sued the Minnesota-based conglomerate best known for making sticky notes, face masks and duct tape, claiming their hearing was damaged by the earbuds. The litigants allege that 3M’s own tests revealed that the earbuds could become detached during use, allowing noise to penetrate.

3M’s Aearo Technologies bankruptcy filing is the latest in a series of controversial bankruptcy maneuvers by US companies, which legal experts say typically stop cases, aim to limit future payouts and urge plaintiffs to settle.

3M has denied that its combat earbuds were faulty when used properly, but said it could potentially take decades before the claims are litigated on a case-by-case basis. The company plans to put $1 billion into a trust to resolve all legal claims in a more efficient and fair process.

“It’s really about us, 3M, moving forward to do what’s right here – do the right thing by veterans and create more certainty, more clarity for everyone involved,” said Mike Roman, CEO of 3M.

But attorneys representing earplug litigants said the $1 billion sum would leave the trust “woefully underfunded” and they would fight the bankruptcy filing in court.

Bryan Aylstock of Aylstock Witkin Kreis & Overholtz, the lead attorney for the plaintiffs in the earplug case, said the plaintiffs argued that the bankruptcy court should deny 3M’s filing and accused the company of a “sneaky attempt” to seek justice for the to delay those injured by its products.

“Instead of dealing in good faith, 3M has decided to shift its relentless attack on US soldiers from the civil courts to the bankruptcy system,” Aylstock said, describing the bankruptcy plan as “further evidence of this.” [it values its] Earnings and stock prices more than veteran welfare”.

Aylstock said the jury has approved 13 of 19 service members whose cases have gone to trial and has so far awarded nearly $300 million in damages.

The bankruptcy of 3M, which manages liabilities related to personal injury cases, follows a landmark ruling by a judge in February that allowed Johnson & Johnson to proceed with a bankruptcy strategy to settle 40,000 claims alleging its baby talk caused cancer. Talk plaintiffs in this case have appealed the verdict.

The healthcare spin-off and corporate reorganization at 3M follow years of underperformance in stock prices, which analysts say is at least in part due to concerns about potential liability related to the earbud litigation. 3M shares rose 7 percent to $143.49 after Tuesday’s announcement before closing 4.9 percent to $140.75.

Julian Mitchell, an analyst at Barclays, said the market would welcome 3M’s efforts to settle the earbud litigation, but noted that this does not absolve the company of responsibility or liability.

“The legal path may not be easy,” he said.

Founded in 1902 as the Minnesota Mining and Manufacturing Company, 3M has long promoted the benefits of sharing scientific knowledge between its diverse businesses.

The decision to spin off the healthcare division comes after a number of global companies, including grocery brand Kellogg, industrial conglomerate General Electric and J&J, announced plans to spin off portions of their businesses.

3M’s healthcare division, which focuses on oral care, healthcare IT and biopharmaceutical filtration, had sales of $8.6 billion last year. The remaining $26.8 billion company will continue to focus on its traditional business, including office supplies.

GE said last November that by 2024 it would have three new public companies focused on healthcare, energy and aerospace. On Tuesday, it announced that it incurred about $207 million in “separation costs” in the second quarter as it headed toward the three-way split.

GE CEO Larry Culp said the growing number of companies spinning off their healthcare businesses probably reflects a realization that healthcare companies tend to operate in a non-industrial environment, particularly among investors.

“If you want the company to be able to realize full value, you probably need that committed investor base,” he said.

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