(BFM Bourse) – The American company 3M is facing several legal actions, in particular from more than 200,000 American army veterans who consider that defective earplugs have caused hearing damage.
It is a reputable company that is now awash in a mountain of legal complaints. The 3M adhesives specialist, known for the tape or the post-it, finds itself facing a cascade of legal actions whose impact could amount to tens of billions of dollars.
In particular, the company is accused by hundreds of thousands of US Army veterans of supplying defective earplugs, which would have caused hearing damage. According to Reuters, which is based on judicial statistics as of May 15, 330,000 complaints have been filed and nearly 260,000 cases are under investigation in this file, which would thus be according to the agency “the most important multi-district dispute of the history of the United States”.
These earplugs were supplied from the early 2000s until 2015 by a subsidiary of 3M, namely Aearo Technologies.
This could cost American society dearly. According to wall street journal3M is in talks to try to settle this dispute which, according to analysts quoted by the daily, could result in a slate of between 10 billion and 15 billion dollars.
In a statement, the company said that “U.S. Department of Defense records, covering more than 175,000 complainants, revealed that the vast majority of complainants…have normal hearing by accepted medical standards. “. Further, “any independent and third-party organization, including the Army Research Laboratory, Air Force Research Laboratory, NIOSH (National Institute for Occupational Safety and Health, editor’s note) and others, concluded that the product was safe and effective to use”.
Local government water pollution
However, the potential cost of these disputes is very high. Especially since 3M is facing other litigation, this time concerning PFAS, namely per- and polyfluoroalkyl substances. These chemical components are used in various applications such as mobile phones or semiconductors, and are sometimes nicknamed “eternal pollutants”. They are used by the group for their non-stick and waterproofing properties.
“Their toxicity is still unknown, but harmful and toxic effects on human metabolism have been observed for several PFAS and their carcinogenic nature is suspected”, explains the site viepublique.fr. 3M also announced at the beginning of the year that it intended to stop the production of these substances by the end of 2025.
More specifically, 3M is for example accused by the city of Stuart in Florida of having manufactured or sold fire-fighting foams containing PFAS which would have ended up contaminating the water of the community. Other municipalities also accuse it of having polluted drinking water, soil, food and caused illnesses because of PFAS.
The Wall Street Journal explains that as part of one of the legal components involving PFAS as a subject – namely the contamination of municipal drinking water by these substances – 3M could pay 10 billion dollars, according to analysts.
These potential costs could melt the group’s dividend (3.4 billion dollars in amount last year).
3M under pressure on the stock market
With the risk of further eroding the stock market appeal of the company. Peter Walls, chief investment officer of Kinroch Capital, told the wall street journal, that the investment company had so far maintained its stake in 3M precisely because the company has a habit of increasing its coupon each year. Reducing it would thus constitute a reason for the fund to consider a sale of this stake.
The American company generates a lot of cash, with more than 6 billion dollars of operational cash flow achieved last year. This allows him to raise his coupon each year. But the announced split of its health division (which represents about a quarter of its sales) will by nature reduce its financial results and therefore theoretically burden its ability to generate financial results and cash. This therefore leads some analysts to believe that the annual increase in the dividend is not sustainable, also given the potential legal costs for society.
Still, 3M will also receive, according to calculations by Royal Bank of Canada cited by the Wall Street Journall, an exceptional dividend from its future ex-subsidiary of $6.7 billion as part of this split project, and will also be able to monetize the balance of its stake in this subsidiary ($3.2 billion).
For now, 3M is clearly suffering on the stock market from these heavy swords of Damocles. Its price has plunged 15% since the start of the year, when the S&P 500 has gained more than 13.5%.
By Julien Marion and Jean-Louis Dell’Oro
Julien Marion – ©2023 BFM Bourse