Trian Issues Open Letter to Solventum Shareholders

Company Performance and Potential - Solventum, formerly 3M's Health Care division, has high-quality businesses that delivered consistent performance within 3M, but its separation has not lived up to potential, with current performance significantly lower than when it was part of 3M [2][3] - Solventum's shares are currently trading at $69, but Trian believes the company could be worth$140 by year-end 2027 if it restores performance to historical levels [1][12] - Solventum's profit margins have declined nearly unprecedentedly since the spin-off, with consensus estimates expecting a 425bps decline in its first full standalone year, making it a bottom decile performer [6][8] Historical Context and Spin-Off Analysis - Prior to the spin-off, 3M research analysts estimated Solventum would be valued at $33 billion, implying a share price more than double its current trading price [3] - Solventum was 3M's best-performing business, consistently the fastest-growing and highest-margin division, but as an independent company, it has struggled to maintain growth and margins [7] - The average mid-to-large cap spin delivered approximately +125bps and +160bps of margin expansion in the first and third full year following separation, while Solventum's margins have declined significantly [6][8] Strategic Recommendations - Solventum should focus on improving operating performance, portfolio actions, and prudent capital allocation to enhance value creation [1] - Simplifying Solventum's portfolio, particularly by addressing non-core segments like Dental Solutions, Health Info Systems, and Purification & Filtration, could improve focus and execution [10][12] - Divestitures of non-core businesses could accelerate deleveraging and enable value-enhancing capital allocation decisions, including dividends, share repurchases, and bolt-on M&A [12] Long-Range Plan and Shareholder Engagement - Trian has initiated dialogues with Solventum's management and board, urging the company to act with urgency to reverse declines and communicate a more ambitious Long-Range Plan (LRP) [4] - The LRP should aim to restore Solventum's performance to historical levels, with growth targets of 3% to 4% organically and EBIT margins of 26%-27%, similar to its performance within 3M [12] - Trian believes historical performance levels and spin-related opportunities should frame Solventum's operating targets and broader strategy [12]