|
 The move by the world's largest health products company follows
similar announcements by conglomerates Toshiba General Electric, as
well as J&J rivals, and underscores how big, diversified
corporations are under pressure to simplify their structures to
increase focus.
This has particularly been the case in healthcare, where the
slow-and-steady business of selling products such as shampoos and
moisturizers has increasingly diverged from the high-risk,
high-reward work of developing and marketing blockbuster drugs.
"We think these have evolved as fundamentally different businesses,"
J&J Chief Executive Alex Gorsky said.
Rival public consumer companies tend to be valued more richly by
investors than the J&J consumer unit, Chief Financial Officer Joseph
Wolk added in an interview.
"That, quite frankly, was getting lost within Johnson & Johnson,"
Wolk said. "Similarly, I think - in terms of pharmaceuticals and
medical devices - that prevented the spotlight from being shone on
those businesses."
The company said it was aiming to complete the separation in 18 to
24 months at a cost of $500 million to $1 billion. J&J shares, part
of the Dow Jones Industrial Average, were up 1.5%. The
pharmaceutical and medical devices unit will retain the J&J name and
the company expects a tax-free spinoff.
Some analysts argued for investor caution.
"Historically, when the market becomes fully valued, we see a great
number of spins being announced as companies look for alternate ways
of creating more shareholder value," said Jim Osman, founder of
research firm Edge Consulting Group. "It's something worth noting
for the investor."
Johnson & Johnson's Band-Aids baby shampoo and cough remedies have
long been the face of the company.
But its pharmaceutical and medical equipment business, which makes
cancer treatments, vaccines and surgical tools, is on track for
nearly $80 billion in sales this year, far ahead of the $15 billion
its consumer products are expected to bring in.
The higher growth outlook comes despite disappointing sales of
Johnson & Johnson's COVID-19 vaccine following a string of
production setbacks https://reut.rs/3n6PwAM and fierce competition
from rivals Pfizer Inc and Moderna.
To view the graphic, click here: https://graphics.reuters.com/JNJ-DIVESTITURE/gkplgdbnbvb/chart.png
[to top of second column] |
 MONEY FOR DEALS?
Johnson & Johnson is following rivals.
GlaxoSmithKline and Pfizer plan to spin off
their joint consumer health business next year,
and German drugmaker Merck KGaA sold its
consumer health division to Procter & Gamble Co
in 2018. Sanofi SA has also planned to spin off
its consumer business.
"The firm's timing is surprising, as we don’t
see any major catalyst for the move. However, if
the consumer division no longer holds the deep
pockets of the combined company, the risk of
future consumer product litigation - such as the
large talc settlement - may decrease,"
Morningstar analyst Damien Conover said in a
research note.
Johnson & Johnson's consumer division has faced
nearly 40,000 lawsuits alleging its Baby Powder
and other talc products contained asbestos later
linked to mesothelioma and caused ovarian cancer
in women using it for personal hygiene, which
the company denies.
In October, it created a separate subsidiary to
hold the talc liabilities, which then filed for
bankruptcy protection.
J&J on Friday said its breakup decision had
nothing to do with the talc litigation or the
bankruptcy maneuver.
A 2018 Reuters investigation found J&J knew for
decades that asbestos, a known carcinogen,
lurked in its Baby Powder and other cosmetic
talc products.
The company stopped selling Baby Powder in the
United States and Canada in May 2020, in part
due to what it called “misinformation” and
“unfounded allegations” about the talc-based
product. J&J maintains its consumer talc
products are safe and confirmed through
thousands of tests to be asbestos-free.
J&J's medical device and pharmaceuticals
business also has faced tens of thousands of
lawsuits for products including DePuy and
Pinnacle implants, surgical mesh products and
Xarelto blood thinner.
The spinoff may allow the remaining J&J to be
more acquisitive, said Jeff Jonas, asset manager
at GAMCO Investors.
Wolk said it was "not a wild assumption" to
expect it would add debt on the new consumer
products company in order to generate some cash
for J&J, but that both companies would have
strong financial profiles, including a strong
investment-grade credit rating for the consumer
business.
(additional reporting by Mike Spector; writing
by Nick Zieminski and Peter Henderson; Editing
by Arun Koyyur, Carmel Crimmins, David Clarke
and Dan Grebler)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content |
