3M (NYSE:MMM) stock got a boost on news it will spin off its health care businesses into a new public company. The news offset the impact of a mixed quarter on MMM stock, highlighted by a $1.2 billion charge against earnings to fund the bankruptcy of its Aearo Technologies combat earplug unit.
3M was trading for almost $140 per share in pre-market trading today, up 4%. It had been down 25% on the year against a 17% loss on the S&P 500, despite a $1.49 per share quarterly dividend yielding 4.4%.
The New Unit
Healthcare products represented nearly one-third of 3M’s $26.8 billion in sales last year. The parent company will retain a 19.9% stake in the new unit, which it will then sell over time. The spinoff will carry a leverage of 3 to 3.5 times EBITDA and was put together with help from Goldman Sachs (NYSE:GS).
In addition to its bandages and related products, the new unit will include 3M’s oral care, medical devices, biopharmaceutical purification and health IT units.
The deal doesn’t include its food safety unit, which is merging with Neogen (NASDAQ:NEOG). The unit has sales of about $500 million but will double the size of Neogen, with 3M stockholders having 50.1% of the stock.
What Comes Next for MMM Stock
The flurry of deals came along with a quarter that wasn’t as bad as feared.
After accounting for the costs of Aearo, there were still profits of $78 million, or 14 cents per share, on sales of $8.7 billion. Without the bankruptcy, earnings would have been adjusted to $2.48 per share against $2.59 per share last year. The company said it had organic sales growth of 1% and projected 1.5% to 3.5% growth for the year, largely due to the strong dollar.
The deals could turn around analysts who have been telling investors to sell 3M. They put a line under the lawsuits and give investors shares in three companies rather than just one.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.