3M Co., a Maplewood-based Fortune 500 company with roots in Minnesota dating back to 1902, announced in July it could spin off its health care division, the maker of products related to wound care, oral care, health care information technology and tiny filters utilized in the production of bio-pharmaceuticals. How big a spin-off are we talking?
In brief: Really big.
With some $8.6 billion in sales last 12 months, 3M’s latest publicly-traded health care partner would qualify as its own Fortune 500 company, employing a whole lot if not 1000’s of staff in an as-yet unknown latest headquarters. City officials, developers and business advocates in St. Paul — where 3M was based until 1962 — have been eyeing the potential for hosting what will likely be a serious latest employer, but competition will likely be intense, and not only inside the Twin Cities metro.
The brand new company — wherein 3M will retain a 20 percent ownership stake — could, in theory, land anywhere on the planet.
“It’s an enormous, huge deal, and super essential to the state of Minnesota,” said Peter Frosch, chief executive officer of Greater MSP, the Minneapolis-St. Paul regional economic development partnership.
There’s reasons to relocate, and to remain local. When Fridley-based Medtronic bought Dublin-based Covidien in 2015, the medical device maker moved its corporate headquarters to Ireland for tax purposes, while still growing operations in Minnesota.
However, when 3M spun-off some 900 employees from its drug delivery division a couple of years ago, the brand new company — Kindeva Drug Delivery — didn’t move far. It worked with the Minneapolis-based Ryan Cos. to construct 136,000 square feet of latest office, warehouse and lightweight industrial space in Woodbury.
“Our experience with major changes like this with a big company is that firms take a number of aspects into consideration and consider all their options,” Frosch said. “We strongly imagine that the St. Paul region, and Minnesota, is the perfect place for this latest company to launch and grow and have maximum success. We intend to make that case to 3M’s leadership.”
Frosch declined to debate how open 3M officials have been to that conversation. He acknowledged that, thus far, individual cities akin to St. Paul and Maplewood are likely operating on their very own, preparing their very own individual pitches to the manufacturing giant.
“That’s not being channeled at this point through Greater MSP,” Frosch said. “If mayors anywhere are reaching out to the corporate, they could be doing that directly.”
Frank Jaskulke, a vp with Golden Valley-based Medical Alley, noted that 3M was one among the founders of his organization, which advocates for 14,000 healthcare and health technology firms across the state.
“Minnesota has the perfect healthcare and health technology out of anywhere on the planet,” Jaskulke said. “We predict Minnesota is the perfect place for them to continue to grow their business, as they’ve for therefore long. Where else do you discover 3M, Medtronic, Mayo, UnitedHealth Group, and so they’re all neighbors?”
In St. Paul, private developers are eyeing 3M’s plans with equal interest.
Jim Crockarell, downtown St. Paul’s largest constructing owner, said the vacant land surrounding the Central Station light rail stop off Cedar Street could easily accommodate a brand new 40-story office tower, which could be the primary latest office constructing erected from the bottom up in downtown St. Paul in many years.
His company, Madison Equities, recently purchased the 975-stall Capital City Plaza Parking Ramp across the road.
“If 3M placed that $9 billion spin-off in downtown St. Paul, it could be great for town,” Crockarell said. “It’s an enormous hole in the midst of St. Paul, and it deserves a high-rise tower. 3M could locate there together with a convention hotel, condominiums, apartments. We could be fascinated with making a proposal to town. … It could tie all the downtown together.”
LAYOFFS, LEGAL SETTLEMENTS AND LAWSUITS
News of 3M’s spin-off plans comes at a difficult time for 3M, which is alleged to be considering significant layoffs and other cost-cutting measures following years of sluggish growth and provide chain challenges. Legal troubles are also mounting.
Bloomberg News recently reported that 3M, which employs some 95,000 people and makes every little thing from Post-it notes to dental adhesives, suffered a serious legal setback on Aug. 26 when an Indiana bankruptcy judge refused to halt a series of lawsuits accusing the manufacturer and its bankrupt subsidiary, Aearo Technologies, of selling faulty combat earplugs that led to hearing loss for 1000’s of U.S. military veterans.
Jury awards in only 10 test trials thus far have already resulted in $300 million in damages, in line with Bloomberg, and that’s before legal fees. At that rate, some 230,000 individual lawsuits could lead to greater than $100 billion in losses.
The corporate can also be under legal pressure in Minnesota, Belgium and elsewhere to remediate PFAS, or so-called “ceaselessly chemicals,” alleged to have seeped from its manufacturing plants into land and drinking water.
On Thursday, the Neogen Corp. of Lansing, Mich. announced it had accomplished a previously announced merger with 3M’s Food Safety business. That merger was first made public in December 2021.
CAMPUS SETTING WITH FACTORY FLOOR, OFFICE TOWER OR OTHER?
In announcing plans for its healthcare spin-off in July, 3M officials said on the time they expected to finish the transaction by the tip of 2023. Since then, the corporate has remained tight-lipped, declining to release further details through the media. And unanswered questions run the gamut.
Will the 3M spin-off be situated in a campus-like setting, with business offices for operations, sales and marketing situated not removed from technical labs and a producing floor? Or will the brand new headquarters land in a brand new or existing office tower, with manufacturing somewhere far off-site, maybe even in one other state? And what number of employees are we talking about, exactly?
On Friday, those inquiries were met with an unsigned email response from 3M’s media relations. “This level of detail shouldn’t be available right now,” reads the response. “More information will develop into available because the transaction progresses over the subsequent 16 months. We plan to share more when we are able to.”
Officials at Greater MSP said there’s little more light they will shed on the company manufacturing giant’s plans. “In the event that they had anything more to say publicly right now, I’m sure it could have been widely circulated,” said Frosch, with a chuckle.
Real estate experts have noted that while tax structures, state and municipal tax incentives and the provision of developable land are all essential considerations for Fortune 500 firms on the move, access to talented labor and industry partners is at the very least as much of a priority. Other concerns — akin to climate challenges, public transit access, commute times and general quality of life — may also weigh heavily.
For a 3M spin-off, the largest moving cost will likely be construction of lab space, which is one of the in-demand areas at once in business real estate as supplies are thin, in line with Ben Krsnak, a business broker with Hempel Real Estate in Eden Prairie.
COMMERCIAL REAL ESTATE EXPERTS WEIGH IN
Krsnak said there could be good reason for 3M’s spin-off to stay in Minnesota, though competition could possibly be intense from out-of-state areas with strong university connections and educated labor pools. Cities with heavy concentrations of life science corporations and degree programs akin to Austin, Texas, San Diego and Boston come to mind.
“Minnesota has a really strong health care community between public institutions akin to Mayo Clinic and University of Minnesota, which make sense for the brand new 3M spin-off to work (collaboratively) on research and testing of latest products,” said Krsnak in an email.
“Their existing experienced worker roster plus potential labor pool with Medtronic, Boston Scientific, Abbott, Philips and other smaller firms also makes it attractive to maintain the spin-off in Minnesota,” he said. “Lots of those are clustered within the north metro from Plymouth to Arden Hills.”
Austin, Texas particularly is already home to some existing 3M operations, which could support moving the spin-off headquarters to Texas while keeping research and development within the Twin Cities metro. But those existing facilities usually are not healthcare-related.
While most of its existing healthcare division resides in Woodbury, 3M maintains a small healthcare footprint in San Antonio, Texas, in addition to a healthcare IT unit in Salt Lake City, Utah.
Inside the metro, Krsnak said potential development sites might include the previous Imation campus in Oakdale, the previous Deluxe campus in Shoreview, the previous Hillcrest Golf Course in St. Paul and the previous Twin Cities Army Ammunition Plant in Arden Hills.
As well as, Optum is vacating about 800,000 square feet of space in Eden Prairie, including the previous ADC headquarters, which has room for expansion. “Future light rail connections nearby could make that a really interesting option,” Krsnak said.
CITIES WEIGH IN
Officials in several Twin Cities cities have declined to debate whether or not they’ve approached 3M in regards to the spin-off directly, or what land and tax incentives they could have offered. The Maplewood campus could, in theory, remain roughly the identical, with 3M leasing out a part of the prevailing campus to the brand new healthcare corporation.
In an email, Maplewood Mayor Marylee Abrams called 3M “a treasured Maplewood asset and significant to our community’s growth for generations.” She said town plans to work closely with business and community partners, including the St. Paul Area Chamber of Commerce, “to make sure as much of this spin-off business stays within the Maplewood area and east metro generally.”
“While this process is in its early stages, I’m confident in our region’s ability to retain the business,” Abrams added. “We’re home to several health care-related businesses, with a talented workforce and deep pool of experience.”
Joe Ellickson, a spokesman for town of Eagan, declined to comment on whether city officials had approached 3M, apart from to say in an email that officials there are “at all times working to make sure Eagan is a fantastic place to live, work, and play. We’re proud to be the house of two,300 businesses, and are an lively partner to make sure our businesses have the infrastructure and amenities they should thrive.”
B Kyle, president and chief executive officer of the St. Paul Area Chamber, said she’s working closely together with her contacts inside the city of St. Paul and Ramsey County to trace 3M’s plans, but she acknowledged that specifics are murky.
“We don’t yet have any details in any respect in regards to the work of this division or of the roles being impacted,” Kyle said. “We also don’t yet know the entity that will likely be buying the division. Numerous unknowns.”