Dive Brief:
- 3M has agreed to pay $6 billion to settle more than 250,000 lawsuits brought by U.S. military service members who allegedly suffered hearing loss after using its combat earplugs, the company announced on Tuesday.
- The settlement could avoid a larger liability related to Dual-Ended Combat Arms earplugs, products that 3M acquired in its 2008 takeover of Aearo Technologies and sold through 2015.
- Bloomberg and Reuters reported earlier this week that the company was nearing an agreement, based on anonymous sources. Shares in 3M rose in the wake of the reports as investors digested news of a settlement that could see the company pay much less than the $10 billion forecast by analysts.
Dive Insight:
3M and Aearo have maintained that the earplugs were safe and effective when used properly, but have faced lawsuits from hundreds of thousands of claimants. The company has lost 10 of the16 cases that have gone to trial, leading to the award of $265 million to 13 plaintiffs.
Facing a potentially large payout, Aearo filed for bankruptcy last year as part of an agreement that saw 3M commit $1 billion to fund liabilities related to the earplug lawsuit. However, a judge dismissed the bankruptcy earlier this year on the grounds that Aearo was not in enough financial distress. The failure to pull off the bankruptcy plan left 3M needing a new way to clear the cases.
According to Reuters, the settlement would resolve allegations that 3M hid design flaws, fudged test results and failed to provide instructions for proper use. Per the terms of the agreement, 3M will contribute a total of $5 billion in cash and $1 billion in common stock between 2023 and 2029.
As a result, 3M will record a pre-tax charge of approximately $4.2 billion. It and Aearo “engaged in insurance recovery activities” to offset a portion of the payments, the company said in a statement.
A separate settlement over the presence of chemicals in drinking water could cost the conglomerate $12.5 billion over 13 years.
Shares in 3M traded at $106.33 Tuesday morning, up 2%, on the news of the settlement.