3M (MMM) cedes food security to NEOGEN as part of a tax-efficient agreement

3M Company MMM announced yesterday that it has reached an agreement to sell its food safety business to NEOGEN Company NEOG. The combination of the food safety activities of 3M and NEOGEN will create a world leader in the food safety market.

The deal has been structured to be tax efficient for shareholders and 3M. The boards of directors of the companies have approved this agreement.

3M shares gained 0.08% in the last trading session, closing at $ 174.72.

NEOGEN provides solutions focused on animal and food safety. Its revenues were $ 128.3 million in the first quarter of fiscal 2022 (ended August 31, 2021) and earnings per share were 16 cents. The company is located in Lansing, MI, and has acquired Genetic Veterinary Sciences, Inc. and Delf (UK) Ltd. in December.

In the headlines

According to the agreement, the enterprise value of 3M’s food safety business is $ 5.3 billion. The value represents 32 times the adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for 2022 (synergies before execution) and 27 times EBITDA for 2022 (synergies after execution). The value of $ 5.3 billion includes new debt. $ 1 billion through 3M’s food safety activities.

For execution, the agreement requires 3M to split / separate its food safety business to its shareholders and then merge it with the wholly owned subsidiary of NEOGEN. Thereafter, NEOGEN will issue shares of the combined company to 3M, which will hold a 50.1% stake in the company. The remaining 49.9% of the combined business will be held by the shareholders of NEOGEN. Consideration of $ 1 billion will also be paid to 3M shareholders.

The combined business is expected to have an enterprise value of $ 9.3 billion (considering the NEOGEN share closing price on December 13, 2021). The leader in food safety will have strong product offerings, innovation capabilities and growth opportunities in the market. It will be better equipped to expand internationally, digitize operations and carry out research and development activities.

Growth and cost synergies, to be achieved within three years of the completion of the transactions, are expected to amount to $ 30 million. Adjusted EBITDA is expected to be $ 300 million in the first year of closing.

Subject to obtaining regulatory and shareholder approvals from NEOGEN and meeting customary closing conditions, the transaction is expected to close in the third quarter of 2022.

Zacks Ranking, Trend Estimation and Price Performance

With a market capitalization of nearly $ 101 billion, 3M currently holds a Zacks Rank # 3 (Hold). Strong product offerings, strengthening end markets, improved marketing capabilities and rewards for shareholders add to the attractiveness of the company. Supply chain issues, high raw material costs and disrupted demand for respirators are cause for concern.

Over the past 60 days, Zacks’ consensus estimate for 3M’s earnings rose 0.9% to $ 9.86 for 2021 and fell 1.1% to $ 10.50 for 2022. L The consensus estimate for the fourth quarter of 2021 has fallen 5.5% to $ 2.06 in the past two months. .

3M Company Price and Consensus

3M Company Price Consensus Table | 3M Company Quote

In the past three months, 3M shares have lost 4.4% from the industry’s 10.4% decline.

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Best-ranked stocks in the industry

Two industry stocks that rank higher than 3M are described below.

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Crane shares have gained 5.6% in the past three months. Zacks’ consensus estimate for VC revenue has increased 5.8% for 2021 and 4% for 2022 in the past 60 days.

ITT Inc. ITT’s results were better than expected in the last published quarter, with earnings surprise of 6.45%. The company currently carries a Zacks Rank # 2.

ITT shares have gained 12% in the past three months. Zacks’ consensus estimate for ITT’s earnings has risen 1.8% for 2021 and 2% for 2022 in the past 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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