3M stock scraps. Judge says no to bankruptcy plan to face legal liability.
The stock posted its biggest one-day drop since April 2019 after a court ruling was handed down against the company.
On Friday afternoon, the Wall Street Journal reported that Judge Jeffrey Graham of the U.S. Bankruptcy Court in Indianapolis had denied
attempted transfer of legal liability associated with defective earplugs sold to the military by a subsidiary of 3M (symbol: MMM) in bankruptcy court.
“We are disappointed with today’s court decision and will appeal,” a 3M spokesperson said. “Despite today’s decision, 3M remains hopeful that all parties and their attorneys will come together to negotiate a speedy resolution to this matter so that veterans with eligible claims can be compensated sooner.”
Shares of 3M fell 9.5% to close at $129.14 on Friday, marking the stock’s biggest percentage drop 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 on its second-quarter earnings conference call in late July that it plans to put the subsidiary, Aearo Technologies, into bankruptcy protection while funding a trust with $1 billion to deal with approximately 230,000 lawsuits pending for earplug injuries.
3M stock jumped nearly 5% after the company released second-quarter numbers last month, and legal strategy was a big reason for the move. The company actually cut its full-year earnings forecast on the call. Cutting guidance usually sends the stock lower.
Legal liabilities related to earplugs — as well as chemicals 3M produced long ago that were found in groundwater — have been an overhang for the stock for many months. 3M has covered the cost of cleaning up the chemicals, although the Environmental Protection Agency has not yet declared them hazardous substances.
3M’s stock is down about 27% year-to-date, while industrial stocks in the
are down about 10% on average. 3M shares peaked in March 2018 at nearly $260.
Wall Street has been worried about liabilities for a while as well. Only one analyst, about 5% of the total, covering Buy stock quotes. The average buy rating ratio for S&P 500 stocks is around 58%.
Write to Al Root at [email protected]