CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money

3M bankruptcy: MMM losses may reach $100bn from veterans’ earplug lawsuits

By Kevin Donovan


Updated

Photo: earplugs are worn by a US Navy patrol squad member firing an M4 rifle
Earplugs sold by a unit of 3M (MMM) to the US military are alleged to have malfunctioned, causing hearing loss for thousands.

Shares in 3M (MMM) were down nearly 2% on Tuesday after a bankruptcy judge in the US on Friday declined to block a mass litigation against one of its subsidiaries for allegedly selling defective earplugs to the US military.

Aearo Technologies is currently filing for bankruptcy protection as it seeks to settle more than 230,000 lawsuits that accuse the maker of noise-cancelling earware of selling products that caused wearers hearing loss. The company is currently undergoing a restructuring in Chapter 11 bankruptcy court to isolate the parent from any potential judgement.

3M (MMM) stock price

Testifying before the court last week, corporate solvency expert J.B. Heaton said he believes the lawsuits could eventually force 3M into bankruptcy.

“It is more and more likely within the next several years we’ll see a 3M bankruptcy,” Heaton said before the court, according to reporting from Bloomberg.

At the close of trade on the New York Stock exchange on Tuesday, shares in MMM were down 1.5%, and have now dropped 12.5% since Friday's court decision.

What is your sentiment on MMM?

127.43
Bullish
or
Bearish
Vote to see Traders sentiment!
Chart showing 3M stock price last week 3M (MMM) stock Source: Tradingview

Market not over-reacting 

But Scott Sheridan, CEO of options trading firm tastyworks, does not believe the Scotch Tape and Post-It notes maker will face the extreme case scenario.

“It’s really hard to see 3M going bankrupt. Not that it can’t happen, but it’s just tough to envision,” Sheridan said, adding he is just speculating on the litigation.

Noting the options market currently prices in a plus or minus $12 per share swing in 3M stock before the November option expiration date, Sheridan said: “it doesn’t seem the market is overly concerned about the financial ramifications this lawsuit might have.”

“That’s not to say this isn’t a humanitarian tragedy, rather, it just seems the market isn’t pricing in much impact,” Sheridan summed up.

Bankruptcy protects parent from litigation

The issue arose during 3M’s most recent second-quarter earnings call with analysts, during which 3M announced it had set aside $1.20bn for Aearo to “efficiently and equitably resolve litigation related to Combat Arms Earplugs.” The fund resulted in a $1.66 per-share per-tax charge.

COIN

297.05 Price
-7.360% 1D Chg, %
Long position overnight fee -0.0241%
Short position overnight fee 0.0019%
Overnight fee time 22:00 (UTC)
Spread 1.09

SMCI

29.76 Price
+15.160% 1D Chg, %
Long position overnight fee -0.0241%
Short position overnight fee 0.0019%
Overnight fee time 22:00 (UTC)
Spread 0.13

TSLA

340.04 Price
-0.690% 1D Chg, %
Long position overnight fee -0.0241%
Short position overnight fee 0.0019%
Overnight fee time 22:00 (UTC)
Spread 0.21

NVDA

145.91 Price
+0.640% 1D Chg, %
Long position overnight fee -0.0241%
Short position overnight fee 0.0019%
Overnight fee time 22:00 (UTC)
Spread 0.12

“We believe the applicable law supports our position as we move forward into this process,” said 3M Chief Legal Counsel Kevin Rhodes during the call. “And the goal, again, is to remove uncertainty to set up a more efficient and equitable process for establishing a fund to compensate claimants who are entitled to compensation as opposed to the process of continuing to litigate on a claim-by-claim basis.”

The bankruptcy was filed simultaneously with the announcement of a spin-off of 3M’s health care unit, and is part of the broader legal strategy to isolate 3M from any potential damages awarded to the plaintiffs and expedite future potential claims. In May, a Florida judge ruled 3M was liable for $77.5m in damages awarded to a US Army veteran who suffered hearing loss. The ruling found that there were design flaws in the Combat Arms earplugs that 3M aware of, but continued to sell the earplugs to the US military between 2003 and 2013.

“The decision to really take the steps related to Combat Arms litigation came out of, first and foremost, the result of the bellwether trial,” said 3M CEO Mike Roman on the same call. “We believe it would take years to litigate those claims.”

 

Dividends and buybacks not affected

Bloomberg also reported that some plaintiff advocates have requested US Bankruptcy Judge Jeffrey Graham freeze any 3M dividends and share buyback programs, in order to protect any potential future judgements in favor of the military veterans.

3M denies all responsibility for any alleged defects and added, “We are committed to using science and innovation to improve lives and solve the world’s biggest challenges, including those faced by the U.S. military,” on a website dedicated to the litigation.

“We are confident in our case and stand prepared to defend ourselves against plaintiffs’ allegations.”

Additionally, 3M says some of the lawsuits lack merit, citing the dismissal of more than 20,000 lawsuits on 6 May.

“3M supports recent efforts, like these orders, by the court to help prevent potentially frivolous lawsuits and to remove existing claims without merit.”

Markets in this article

MMM
3M
127.43 USD
-0.5 -0.390%

Related topics

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 660,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading