3M Co. has agreed to join its food safety unit with Neogen Corp. in a deal that makes the combined entity worth about $9.3 billion. Neogen Shareholders will own 49.9% and Neogene 3M shareholders 50.1 % in the new entity as per the company’s statement on Tuesday.
As per the company’s executives, the deal represents the active approach of 3M in managing a diverse portfolio, ranging from making smartphone screens to N95 respirators, Post-it Notes, and industrial adhesives.
As per Bloomberg News, the shares of Neogen rose by 5.2% Tuesday to $42.23 in New York after an intraday climb to 5.7%. The 3M shares gained 1% to $176.27. The Neogen stock has gained 1.2% in the year, while the S&P Midcap index has risen by 19 %.
The 3M stocks trailed in 2021 compared to peer due inflations disrupting operations, environment, and legal liabilities running into billions of dollars that have spooked investors.
The food safety business earned a revenue of $342 billion last year, a small percentage of the $8.3 billion sales of 3M. The unit that sells products to food producers for monitoring allergens and sanitation has generated around $280 million in sales in 2021, according to the Vice President for investor relations, Bruce Jermeland.
3M has been exploring opportunities to sell this unit since September 2020.
According to Nigel Cole, a Research analyst at Wolfe, the merger will not affect the narrative of 3M stock as the business model is highly integrated and not easy for a broader breakup.
As per Bloomberg intelligence, 3M’s plans to merge its food business unit with Neogen will not impair the credit quality but rather open doors for 3M to take more aggressive actions to pull up its stock.
The transaction means a business valuation of the is 3M unit at $5.3 billion, which includes $1 billion of new debt. The merged company is projected to have $300 million earnings before interest, depreciation, tax, and amortization for the entire year closing as per the company’s statement.
3M is expected to receive around $1 billion after adjustments and plans to use this fund towards debt and dividend payment.
The merger with Neogen is expected to be finalized by the end of Quarter 3, subject to shareholders and other regulatory and customary approvals.
