3M Co. has agreed to pay $6 billion to resolve hundreds of thousands of lawsuits alleging it sold defective earplugs to the US military that led to hearing damage for combat troops.
(Bloomberg) — 3M Co. has agreed to pay $6 billion to resolve hundreds of thousands of lawsuits alleging it sold defective earplugs to the US military that led to hearing damage for combat troops.
The company will pay $5 billion in cash and $1 billion in 3M common stock under the terms of the agreement, it said in a statement on Tuesday. It said it would record a third-quarter pretax charge of about $4.2 billion, on top of the $1.1 billion it has already allocated for the claims. 3M isn’t admitting any “fault or liability” as part of the settlement, according to court filings.
The settlement, in one of the largest multi-district litigation cases in US history, resolves a major source of uncertainty for 3M investors. They have watched the company’s market value decline by more than half since 2019 amid legal liability from the earplug claims and 3M’s legacy of producing “forever chemicals.” In June 3M agreed to pay as much as $12.5 billion to settle claims by drinking-water utilities over the substances.
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Shares of 3M were up 1.9% at 10:39 a.m. in New York on Tuesday following Monday’s gain of 1.5% after Bloomberg reported the settlement. They have fallen 13% so far this year, while the S&P 500 Index has gained 15%.
“This historic agreement represents a tremendous victory for the thousands of men and women who bravely served our country and returned home with life-altering hearing injuries,” Bryan Aylstock, a Florida-based lawyer for plaintiffs in the earplug cases, said in an emailed statement.
More than 320,000 former US service members and others have filed suits that were consolidated into a multi-district litigation case in federal court in Florida. Attorneys for the plaintiffs said that not all cases will qualify for compensation under the deal. Roughly 250,000 active plaintiffs have claims before the court, 3M Chief Legal Affairs Officer Kevin Rhodes said on a call with analysts.
“This agreement, reached through the mediation process that 3M has previously disclosed, is structured to promote participation by claimants and is intended to resolve all claims associated with the Combat Arms Earplug products,” 3M said in a statement on Tuesday.
Former military personnel will have about six months to decide whether to accept a payout or take their case to trial, according to court filings. If they opt out of the settlement to join the ranks of litigating plaintiffs, they face accelerated deadlines for expert-witness reports and other documents, the filings show.
Lawyers said plaintiffs who won early trials against 3M over the earplugs agreed to accept a cut in their awards to be paid under the settlement. Some are accepting as much as 60% less than awarded to resolve their cases without appeals.
Analysts at Barclays had pegged the company’s potential liability at about $8 billion. Bloomberg Intelligence said it could range from $4.5 billion to as much as $9.5 billion. While the settlement was at the low end of estimates, “it may accelerate negative rating activity as S&P and Moody’s have not fully accounted for the legal overhangs,” BI analysts Joel Levington and Michael Doto wrote Monday.
3M would make an initial payment of as much as $660 million this year to cover damages awarded by juries to service members in trials so far and other costs related to the litigation, according to a company presentation released Tuesday.
Another $3.5 billion would be paid between 2024 and 2027 once a 98% threshold of participating claimants is met, plus as much as $1.2 billion if the participation rate exceeds 98% payable from 2026 through 2029. Those payments would be made with a mix of cash and 3M stock, Rhodes said on the call.
The deal still must be approved by US District Judge Casey Rodgers in Pensacola, who has noted that it is one of the biggest MDLs ever.
Rodgers appointed John Perry Jr. as a special master to oversee disputes about the accord’s terms, according to court filings. He will decide disagreements over calculations of participation levels, the filings show.
The case is In Re 3M Products Liability Litigation, 19-md-2885, US District Court, Northern District of Florida (Pensacola).
–With assistance from Anne Cronin.
(Updates with further details of settlement in second section and 3M’s payment schedule in last section.)
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