Johnson & Johnson plans to split into two companies, aim for faster growth

Health-care conglomerate Johnson & Johnson announced plans on Friday 12 November to split its consumer products business from its pharmaceutical and medical device operations, creating two publicly traded companies. The news sent shares higher in premarket trading. The separation will sheer off its household products unit, maker of Band-Aid bandages, Aveeno and Neutrogena skincare products, and Listerine, from its riskier, but the faster-growing division that makes and sells prescription drugs and medical devices, including its Covid-19 vaccine.

The split into two publicly traded firms, according to company leaders, will make each business more flexible in adjusting to its different markets. It also enables a more precise allocation of capital.

CEO Alex Gorsky said that: “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.”

The company said it hopes to complete the transaction in 18 to 24 months. The segment selling prescription drugs and medical devices — J&J's two largest businesses — will keep the Johnson & Johnson name. Its products include the cancer treatment Darzalex, a COVID-19 vaccine, and medical devices for orthopedics and surgery. The new consumer health company has yet to be named. It will house brands including Neutrogena, Aveeno, and the iconic Band-Aids.

“It’s in the best long-term interest of all our stakeholders,” CEO Alex Gorsky said on “Squawk Box.” “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.”

In the company's just-ended third quarter, pharmaceuticals and medical devices brought in a combined $19.6 billion in revenue, outperforming analysts' expectations. $3.7 billion was generated through consumer health. According to Gorsky, the consumer health industry has over 20 brands with annual sales of more than $150 million each. He went on to say that the portfolio includes well-known brands like Tylenol and Tylenol for Children, both of which have hit all-time highs in market share.

J&J is beginning its split as it also undergoes a leadership transition Gorsky’s departure as CEO. He will remain on as executive chairman of the new J&J, the company said. Duato is taking over the CEO role in January as previously planned.

Its yet-to-be-named consumer products firm will also acquire cases resulting from claims that Johnson's Baby Powder causes cancer, which the corporation has categorically disputed. J&J stock was up more than 3% in premarket trade on the announcement. In addition, the business stated that its overall dividend would remain "at least at the same level" following the modification. J&J's dividend yield is currently about 2.6 percent.

The news J&J plans to split into 2, comes just days after General Electric announced intentions to split into three publicly traded entities, separating its medical and energy divisions from its aviation division.




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