Beleaguered industrial conglomerate 3M (NYSE:MMM) is facing yet another challenge. This time, product liability claims for faulty military earplugs could lead to some significant pain for MMM stock.
According to The Wall Street Journal, Judge Jeffrey Graham of the U.S. Bankruptcy Court in Indianapolis declared that he would not extend 3M the same protection afforded to its Aearo Technologies subsidiary, which filed for Chapter 11 last month. Aearo designed the earplugs in question, which many U.S. military veterans claimed were defective, causing lasting hearing damage.
For its part, 3M denies any safety defect with the earplugs. The company attempted to latch onto Aearo’s Chapter 11 umbrella but has so far failed. Now, 3M plans to appeal the bankruptcy court’s decision, although investors have already taken a dim view of MMM stock. Over the trailing five days, shares are down about 10%.
Of great concern for 3M’s management team is the fact that this latest setback opens the door to an inefficient process. The company says that litigating each earplug case one by one over the next several years “benefits no one.” A 3M representative elaborated, “All parties should focus on the clearer path toward more efficiently and equitably resolving claims that are entitled to compensation through the well-established chapter 11 process.”
MMM Stock Faces an Avalanche of Pain
What really has stakeholders of MMM stock worried is 3M’s established track record of legal pain. According to a Bloomberg report, “Losses in 10 test trials have already resulted in $300 million in damages awarded by juries and millions of dollars more in legal fees, with more trials potentially set to proceed after Friday’s ruling.”
Initially, 3M’s plan involved putting its Aearo subsidiary into Chapter 11 proceedings. Management had hoped it could “win the court’s blessing to extend the same litigation-freezing benefits of court protection to the parent.” Obviously, this past Friday’s announcement squashed that idea. Cornell law professor Alexandra Lahav noted the following about the situation:
“This leaves them right back in the place they started before they filed the bankruptcy […] It’s pretty clear they need to negotiate some kind of global resolution of these cases.”
RBC Capital Markets analyst Deane Dray also weighed in, estimating that settlements “may cost $10 billion or more.” The analyst continued, “This is not an altogether surprising development […] The expectation was that 3M’s bankruptcy strategy would be vigorously contested.”
Why It Matters
In recent years, 3M faced one high-profile crisis after another. In 2020, during the height of the pandemic, the industrial conglomerate suffered the wrath of public opinion. Even former President Donald Trump expressed displeasure, eventually invoking the Defense Production Act against the company.
Politically, MMM stock finds itself in the crosshairs, too. The very thought of a major corporation possibly harming veterans will likely not sit well with the public moving forward.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.