3M shares fall. Judge says no to bankruptcy plan to handle legal liability.
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3M stock was dealt a blow by a US bankruptcy judge on Friday.
Alamy
3M
the stock had its biggest one-day decline since April 2019 after a legal ruling went against the company.
On Friday afternoon, The Wall Street Journal reported that Judge Jeffrey Graham of the US Bankruptcy Court in Indianapolis refused
3M
‘s
attempt to move legal liabilities related to defective earplugs sold to the military by a 3M (ticker: MMM) subsidiary to bankruptcy court.
“We are disappointed by the court’s ruling today and will appeal,” a 3M spokesman said. “Despite today’s ruling, 3M continues to hope that all parties and their attorneys will come together to negotiate a speedy resolution to this matter so that those veterans with qualified claims can be compensated sooner.”
Shares of 3M fell 9.5% to close at $129.14 on Friday, marking the stock’s biggest percentage decline since April 25, 2019, when it fell 12.95%, according to Dow Jones Market Data.
The bankruptcy was part of a strategy to limit and quantify 3M’s liability. The company said at its second-quarter earnings conference call in late July that it planned to put its subsidiary, Aearo Technologies, into bankruptcy protection while it funded a $1 billion trust to handle about 230,000 pending earplug damage lawsuits.
3M shares had jumped nearly 5% after the company reported second-quarter numbers last month, and the legal strategy was a big reason for the move. The company actually cut full-year earnings guidance on the call. Cutting guidance usually sends the stock lower.
Legal obligations related to earplugs – as well as chemicals that 3M produced long ago and that have been found in groundwater – have been an overhang for the stock for many months. 3M has charged cleanup costs related to the chemicals, even though the Environmental Protection Agency has not yet declared them hazardous substances.
The 3M share is down approx. 27% so far this year, while industrial stocks i
S&P 500
is around 10% on average. 3M shares peaked in March 2018 at nearly $260.
Wall Street has worried about the liabilities for some time as well. Only one analyst, about 5% of the total, covers the stock prices Buy. The average buy rating for stocks in the S&P 500 is approximately 58%.
Write to Al Root at allen.root@dowjones.com
