The American multinational giant, 3M, has humble origins in sandpaper manufacturing. The company was incorporated in 1902 as a Minnesota Mining and Manufacturing firm.
Over the past century, 3M has grown by leaps and bounds. It has steadily added a stream of products to its manufacturing line, including masking tape, cellophane tape, adhesives, auto parts, and chemicals.
However, reports reveal that 3M’s shares have disappointed since 2023. Is it just disappointing performance or weak end markets? In this article, we will explore the two major reasons why 3M’s stock may have taken a hit. Most importantly, we will also explore whether news surrounding 3M’s bankruptcy is true or just the brewing of an intentional scandal.
The Chaos Surrounding Firefighting Foam
With its operational wing extending into multiple domains, 3M also manufactured firefighting foam to extinguish Class B fires. Essentially, it participated in producing per- and polyfluoroalkyl substances or PFAS – a complex group of chemicals (over 12,000).
These chemicals form the primary ingredient of Aqueous Film Forming Foam or AFFF. Ever since its production in the 1960s, AFFF has been used by military personnel, at airports, and in any area where liquid fuel is the cause of a fire breakout.
After using this foam for decades, firefighters were unaware of the dangers lurking in the form of deadly cancers. Cases of kidney and testicular cancers emerged, and studies confirmed the strong link between these conditions and PFAS.
It was found that firefighters had a 9% higher risk of being diagnosed with cancer. Thousands began filing a firefighter foam lawsuit against PFAS manufacturers like 3M. Even municipalities filed water contamination lawsuits as AFFF polluted the underground water supply.
According to TorHoerman Law, the litigation was divided into two categories – personal injury lawsuits and water contamination lawsuits. In 2023, 3M settled all water contamination lawsuits with a massive $10.3 billion. The same would be distributed among municipalities over 13 years for PFAS detection and remediation.
Even though 3M is a big name in the corporate world, losing billions has made a dent in its treasury.
The Military Earplug Fiasco
3M is among the few privileged companies that can manufacture products for the US government and armed forces. It manufactured the combat arms earplugs, which were used by military servicemen between 2003 and 2015.
It was produced to provide hearing protection against outside forces. They were designed to be a step ahead of regular foam earplugs to increase military members’ situational awareness. Now, this is where the problem comes in.
With such a highly touted product, the company was running the risk of product defects. Thousands of members of the armed forces alleged that the earplugs led to severe injuries like hearing loss. It was later found that the earplugs were faulty or inherently flawed by design.
The victims filed a product liability lawsuit against the manufacturer. Roughly 300,000 lawsuits were filed against 3M for which the company agreed to settle for $6 billion. However, what’s interesting is that 3M continues to defend itself, claiming that its earplugs are safe when used properly.
This win for the plaintiff’s counsel was a further blow to 3M’s treasury (after the PFAS lawsuit settlement earlier last year).
3M’s Bankruptcy: Why is it So Controversial?
At the time of settling the earplug lawsuits, 3M sought the help of the bankruptcy court. The company attempted to minimize product liability costs. However, the same did not work in 3M’s favor.
The judge rejected the appeal, after which the company had to agree to a $6 billion out-of-court settlement. Many people believe that such attempts are merely 3M’s way to manipulate its standing in court. The company may not be on the verge of bankruptcy.
However, chances of undergoing financial straits (even to a slight extent) are there. The company’s odds of distress are under 8%. The main reason behind all of this appears to be poor performance and financial distress.
The looming threat has more to do with the fact that the legal battle is not yet over (not even close). Both the litigation will likely see more cases being filed. This means 3M will have to prepare itself for losing millions more.
It may be years before all lawsuits are anywhere near being settled. The fact that the company made a bankruptcy maneuver and is focused on restructuring the business to overcome losses shows its lack of concern for the victims.
It is indeed tragic to witness the downfall of another mighty business empire. Even if it’s true that 3M is not suffering real bankruptcy, the company has lost its good standing among the masses. Even its stock prices are experiencing a dip. But it doesn’t look like the company is going out of business anytime soon.
