Key points
- 3M (MMM) gives Amazon a warrant on its stock
- What Amazon has to buy from 3M for it to vest
- 3M holds its earnings call on Oct. 20
3M (MMM) has given Amazon (AMZN) the right to buy up to 3,162,015 shares of 3M stock at $164.89 each, as part of a bigger deal for 3M to supply Amazon's data centers. Most of those shares only become available as Amazon's payments to 3M for optical connectivity and other data center products add up. Cumulative payments of $6 billion would fully vest the purchase-linked portion. The remaining 15% depends on separate milestones, according to 3M's 8-K filed after the market closed on Oct. 19.
3M shares rose to $170.80 in after-hours trading as of 7:59 p.m. Eastern, about 5.4% above their $162.01 closing price. The stock had fallen 1.7% during the regular session.
How the Amazon warrant works
The seven-year warrant gives a wholly owned Amazon subsidiary the right to buy 3M shares at $164.89 each. Amazon must meet the vesting conditions before it can exercise those rights.
Purchases of optical connectivity and other data center products determine how much of the warrant's purchase-linked 85% vests. The other 15% is tied to what the filing calls "event-based milestones," which it does not describe.
The filing describes $6 billion as a vesting threshold, not a purchase commitment, and does not say when Amazon is expected to reach it.
Several reports put the warrant's value above $521 million. That figure is actually the cost of buying all 3,162,015 shares at the exercise price. The warrant's current value depends on 3M's share price, expected stock-price volatility, time remaining, and vesting conditions.
The exercise price was about 1.8% above 3M's Oct. 19 closing price. If exercised in full, the warrant would cover shares equal to about 0.6% of the 515.7 million shares 3M had outstanding at the end of June.
The same playbook Amazon used with Generac
This is a familiar structure for Amazon. In September, Generac gave Amazon a warrant tied to $8 billion of generator payments for its data centers. Amazon has also received a warrant from Qualcomm tied to custom AI chip purchases. Each time, the supplier gives Amazon a share of its upside, and Amazon's purchases help determine how much of that potential upside Amazon earns.
3M is building out its fiber connector business
The filing names optical connectivity products first. Those are the connectors that link fiber optic cables inside data centers. 3M's main product there is its Expanded Beam Optical technology, or EBO. Traditional fiber connectors need two glass ends to touch directly. EBO sends an expanded beam of light across the connection instead, which 3M says makes the connectors faster to install and more tolerant of dust.
In July, Microsoft (MSFT) became the first announced cloud provider to deploy EBO in its Azure data centers. About half an hour after the filing, 3M also announced a manufacturing collaboration with Taiwan's Genius Electronic Optical (GSEO). 3M expects to buy about 4.7% of GSEO through a private placement of new shares, to help scale up EBO production.
3M holds its third-quarter earnings call on Oct. 20 at 9 a.m. Eastern, giving analysts an opportunity to ask about the agreement.
