To The Moon

• 3M(MMM) will spin off its health care businesses, retaining a 19.9% stake.
• The company also spun off its Aearo combat hearing aids into bankruptcy to settle lawsuits.
• The deals sent MMM stock up despite a mixed quarter.

3M$3M(MMM)$ stock got a boost on news it will spin off its health care businesses into a new public company. The news offset the impact ofa mixed quarteron MMM stock, highlighted by a $1.2 billion charge against earnings tofund the bankruptcyof its Aearo Technologies combat earplug unit.

3M was trading for almost $140 per share in pre-market trading today, up 4%. It had been down 25% on the year against a 17% loss on the S&P 500$S&P 500(.SPX)$ , despite a $1.49 per share quarterly dividend yielding 4.4%.

The New Unit

Healthcare products represented nearly one-third of 3M’s $26.8 billion in sales last year. The parent company will retain a 19.9% stake in the new unit, which it will then sell over time. The spinoff will carry a leverage of 3 to 3.5 times EBITDA and was put together with help from Goldman Sachs$Goldman Sachs(GS)$ .

In addition to its bandages and related products, the new unit will include 3M’s oral care, medical devices, biopharmaceutical purification andhealth IT units.

The deal doesn’t include its food safety unit, which ismerging with Neogen$Neogen(NEOG)$. The unit has sales of about $500 million but will double the size of Neogen, with 3M stockholders having50.1% of the stock.

What Comes Next for MMM Stock

The flurry of deals came along with a quarter that wasn’t as bad as feared.

After accounting for the costs of Aearo,there were still profitsof $78 million, or 14 cents per share, on sales of $8.7 billion. Without the bankruptcy, earnings would have been adjusted to $2.48 per share against $2.59 per share last year. The company said it had organic sales growth of 1%and projected1.5% to 3.5% growth for the year, largely due to the strong dollar.

The deals could turn aroundanalysts who have been telling investors to sell 3M. They put a line under the lawsuits and give investors shares in three companies rather than just one.