3M Successfully Spins Off Its Healthcare Business
On Friday, February 27th leaders across 3M Company (“3M”) met with Nicholas Center MBA students to provide an overview of the company’s spinoff of their healthcare division into an independent, publicly traded company named Solventum Corporation (NYSE: SOLV) and offer reflections and key lessons learned through the transaction. The decision to separate the healthcare segment was significant as 3M had operated the business for over 70 years with $8.4 billion in sales in 2022, representing roughly 25% of the total company’s revenue before the separation. Ultimately, 3M identified that the benefits of enhanced agility and focus, tailored capital allocation strategies and distinct management teams allowed the businesses to create the most shareholder value while operating as standalone entities.
The 3M team consisted of Teresa Crockett (SVP & CTO), Sarah Tennessen (VP, Finance CBG), Gabrielle Heinzmann (Senior Director, Key Account Leader), Saha Woghiren (Finance Director – Enterprise Supply Chain) and Jennifer Hollanitsch (Finance Manager – Accounting Acquisitions & Divestitures). They provided four key themes to navigate successful spinoffs that lead to outperformance: 1) Developing a fit for purpose operating model, 2) Emphasizing speed to execution, 3) Devising an optimized capital structure and focusing intently on managing the various stakeholders involved, and 4) In-depth analysis and thoughtful deliberation of the operating model create the conditions for the new entity to achieve a competitive cost structure and above-market growth. Careful planning is supplemented by swift execution as progressing through the process of implementing the operating model uncovers new data points and unanticipated challenges that add depth and resilience. Calibrated funding and active stakeholder management are fundamental to ensuring the continued success of the new entity.
Finance as the Backbone of a Complex Transformation
Finance played a key role in this complex and challenging multi-year transformation from initial planning through ongoing operational support. Ahead of the transaction, the finance team was integral in building out the plan of how 3M and Solventum would operate as standalone entities and analyzing a range of scenarios to ensure preparedness for a variety of potential outcomes. Key considerations were the impacts of decoupling commingled resources such as shared manufacturing support and centralized corporate support, what optimizations would be necessitated relative to existing operating practices and modeling out sensitivities of transitional milestones being achieved at various points in time.
Global Coordination: Building Country Specific Financial Separation Plans
Adapting the financial statements to seamlessly represent the separation in the context of a large multinational organization was an intricate effort that entailed precise coordination driven by top-down guidance. A global separation team was formed to perform in-depth analysis and due diligence with each country the business operated in to understand their respective financial reporting practices and devise a comprehensive and cohesive separation approach and timeline. These global efforts were reinforced by regional separation teams that worked in concert with country-level accounting teams to provide clarity on questions, solutions to issues and assure accuracy and consistency.
As the spinoff approached, this foundational work was instrumental in providing company leaders and investors with clear and rigorous guidance on anticipated immediate impacts to financial performance and the primary drivers that would allow the new entities to unlock superior value. Transparency of how corporate strategy and planned capital investments would evolve in this new operating environment and how business results moving forward could be meaningfully benchmarked to historical performance were critical to garnering receptiveness and support from internal and external stakeholders.
Transitional Agreements: A Framework for Stability
To support business continuity, 3M and Solventum established a range of agreements that facilitated ongoing collaboration as they each began to work on developing their resources to eventually achieve full independence. Various licensing and transitional agreements spanned from a few months to a few years with the longest term being the Supply Agreement that ensured both companies would have coordinated access to key inputs required for their respective businesses. Meeting obligations specified in the Supply Agreement was approached from a continuous improvement perspective and began with 3M assembling a team dedicated to establishing an ongoing relationship with Solventum. Primary aspects of this relationship were formalizing how and when the two entities would interact to communicate their evolving business needs and developing tools to track the scope and performance of the arrangement. When reflecting on the Supply Agreement and various other agreements that were required to execute the spinoff the 3M team highlighted the importance of specificity, noting that having a clear mutual understanding of the scope and duration of these arrangements is essential to both companies continued success both during and after this transitional period.
The opportunity to gain perspectives from prominent decision-makers across multiple functions of 3M’s leadership team on this high-stakes and momentous strategic event in the company’s history was incredibly fruitful and formative for Nicholas Center students seeking to develop into future finance leaders. Applied insights across the entire lifecycle of the transaction from initial planning through and beyond transaction execution offered glimpses into the decisions and considerations crucial for effective financial management and provided lessons that will benefit students as they navigate challenges in their future careers.
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