3M Merging Food-Safety Unit With Neogen in $9.3 Billion Deal
(Bloomberg) -- 3M Co. agreed to separate its food-safety business and combine it with Neogen Corp. in a deal valuing the combined company at about $9.3 billion.
Using a tax-free reverse Morris trust, Neogen shareholders would own 49.9% of the new entity and 3M shareholders about 50.1%, the companies said in a statement Tuesday.
The deal highlights what 3M executives say is the company’s active approach to managing a portfolio of businesses that make everything from Post-it notes to N95 respirators, smartphone touch screens and industrial adhesives.
Neogen rose 5.2% to $42.23 at 9:59 a.m. in New York after climbing as much as 5.7%, the most intraday in two months. The stock had gained 1.2% this year through Monday while the Standard & Poor’s Midcap 400 Index advanced 19%. 3M gained 1% to $176.27 Tuesday.
3M’s stock has trailed its peers this year as inflationary pressures disrupted operations and environmental as well as legal liabilities -- potentially in the billions of dollars -- have spooked investors. The shares had been essentially unchanged through Monday, while the S&P 500 Industrials Index rose 17%.
The food-safety business had revenue of about $342 million last year, a small piece of the $8.3 billion in sales for the St. Paul, Minnesota, company’s health-care group. The unit, which sells products to help food producers monitor sanitation and allergens, has generated a little more than $280 million in sales this year, Bruce Jermeland, 3M senior vice president for investor relations, said on a webcast with analysts.
The company had been exploring a potential sale of the business since at least September 2020.
“We don’t see this as materially changing the narrative for the stock,” Wolfe Research analyst Nigel Coe said in a note Tuesday. “We also believe that 3M’s highly integrated business model is a high hurdle for a broader breakup.”
What Bloomberg Intelligence says:
“3M’s plans to combine its food safety business with Neogen shouldn’t impair credit quality, but open the door to potentially more aggressive actions to address its trailing stock price. Event risk screens high at 3M, in part due to its operating performance as well as potentially very significant environmental liabilities -- key reasons why our value views of its bonds haven’t been constructive.”
-- Joel Levington, BI credit analyst
Click here to read the research.
The transaction implies an enterprise value for the 3M unit of $5.3 billion, including $1 billion of new debt. The merged company is expected to have adjusted earnings before interest, tax, depreciation and amortization of about $300 million in the first full year after the closing, according to the statement.
3M is slated to receive about $1 billion, subject to closing and other adjustments, and plans to use the funds toward dividend and debt payments.
The merger is expected to close by the end of the third quarter, subject to regulatory and shareholder approvals and other customary conditions.
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