On the heels of a failed attempt at bankruptcy, 3M has agreed to pay $6 billion dollars to resolve 240,000 lawsuits relating to combat earplugs. If you’re not familiar with the ongoing litigation, 3M and its subsidiary, Aearo Technologies, allegedly produced defective earplugs which were ineffective in protecting service members’ ears from the loud sounds associated with military training and combat. Both the federal government and numerous service persons have alleged that those who wore the defective earplugs have gone on to develop hearing loss and/or tinnitus.
While the federal government lawsuit was resolved years ago ($9.1M without an admission of fault), thousands of individual lawsuits remained. To reduce the exposure, 3M tried to place Aearo into bankruptcy (common strategy for mass tort cases, see J&J). That was a swing and a miss. The Bankruptcy Court found no valid reorganization purpose (effectively “lol, this is bullshit”) and the move failed.
With no bankruptcy there was no leverage and the settlement offer sourced to this historic number ($5B in cash, $1B in common stock).