On 4 August, 3M reported on the Company website announced that they will carry out a split-off for the area of food safety. This is to take place this month. But what is a split-off and does it really make sense?
3M is currently undergoing a restructuring. This includes the announced spin-off of the healthcare division and now also a split-off of the food safety division. As an investor, I recently received an email from my broker. It looks like this:
But how should I decide and is this an attractive offer? To answer this question, I first need to understand how this exchange will take place.
In a split-off, a part of the company, in this case the food safety division, is spun off and becomes an independent company. The difference with a spin-off is that investors have to choose one side. And for this reason it is also called an exchange. Usually such a split-off takes place after an IPO and based on the market price, the offer to shareholders is then determined. As in this offer, the price offered is usually higher than the price of the parent company. Applied to this case, this means that a part of 3M is spun off. This spin-off is then merged with Neogen.
So if I were to decide to exchange, I would exchange all my current 3M shares for Neogen Corp. shares. Now, of course, the question also arises "What does Neogen Corp. do?".
The Neogen Corp. tests food and issues corresponding certificates. If, for example, a food producer wants to have a product labelled as "vegan", it is tested by Neogen and then a certificate is issued. After the merger, an annual turnover of about 1 billion USD is to be generated and in the first year the EBITDA should be about 300 million USD. The company is already listed on the stock exchange and describes itself as a market leader in the food safety industry. Since the announcement of the merger, the share price has fallen by 50%.
I have been a 3M investor since early 2022 and have a savings plan on the stock. One of the most important reasons why I invested in 3M is that they have been raising dividends for 64 years and are one of the few dividend kings. Since Neogen has not paid a dividend so far, I don't want to change my strategy and give up the great dividends. On the other hand, this does not mean that Neogen is not an interesting company. Above all, the merger will make them number 1 in the food safety sector and the market conditions are not bad either.
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