Investing News

Johnson & Johnson (JNJ) Splitting Into Two Companies

Health care giant Johnson & Johnson (JNJ) will divide itself into two publicly traded companies. One will inherit J&J’s extensive portfolio of well-known consumer products, while the other will continue to develop, produce, and distribute pharmaceuticals, medical devices, and medical technology. Johnson & Johnson indicates that the transaction will take place sometime over the next 18 to 24 months and that the pharmaceutical, medical devices, and medical technology company will retain the Jonson & Johnson name.

The initial reaction of the markets was positive. As of 11:50 a.m. Eastern Standard Time on Nov. 12, 2021, the date of the announcement, shares of JNJ were up by about 1.3% for the day. However, even after this advance, they were trading 8.2% below their 52-week high reached in August 2021.

Key Takeaways

  • Johnson & Johnson (JNJ) will split into two public companies within the next 18 to 24 months.
  • One will get its many consumer brands, while the other will get its pharmaceuticals, medical devices, and medical technology businesses.
  • The consumer company is yet to be named, while the drug company will keep the Johnson & Johnson name.
  • The consumer division currently generates about $15 billion in annual sales, while the faster-growing drug unit produces about $77 billion.

Separating Products and Brands

The new consumer products company, which has yet to be named, will own such well-known brands as Band-Aid bandages, Aveeno and Neutrogena skin care products, Tylenol pain relief products, JOHNSON’S Baby Care products, and Listerine mouthwash, among others.

Meanwhile, the pharmaceuticals, medical devices, and medical technology company, which will retain the Johnson & Johnson name, will have its one-dose COVID-19 vaccine among its many products, as well as advanced medical technologies such as robotics and artificial intelligence (AI). The incoming CEO of J&J, Joaquin Duato, will head the latter company when the split takes place.

J&J indicates that the consumer division is projected to generate sales of about $15 billion in 2021, while the faster-growing pharmaceuticals, medical devices, and medical technology unit is on track to deliver about $77 billion in revenue. J&J’s consumer division has four brands that each produce over $1 billion in annual sales. It also owns 20 brands that each generate over $150 million in yearly revenues.

A key risk for the consumer products company will be litigation claiming that Johnson’s Baby Powder is carcinogenic. J&J has denied this claim vigorously.

Strategic Rationale

Outgoing J&J CEO Alex Gorsky said this in a statement about the planned split of the company: “Following a comprehensive review, the board and management team believe that the planned separation of the consumer health business is the best way to accelerate our efforts to serve patients, consumers, and healthcare professionals, create opportunities for our talented global team, drive profitable growth, and—most importantly—improve healthcare outcomes for people around the world.”

In an interview, Gorsky indicated that J&J’s board has discussed this move for “some time,” and he anticipates that it will produce “tremendous opportunity” to stakeholders. He added: “It’s in the best long-term interest of all our stakeholders. Our goal is really to create two global leaders—a pharmaceutical and medical device business that has great potential today … and of course, the consumer business that’s got iconic brands.”

Gorsky also claimed that the split would be an especially positive development for J&J’s extensive lineup of consumer products. He asserted that, as a separate company, the consumer division will have “even more agility” and “a better opportunity for capital allocation.”