Johnson & Johnson (J&J) shares rose after the maker of cancer treatments, mouthwash and Tylenol said it will break itself up into two public companies, one focused on drugs and medical devices, and the other on consumer products.
The health-care giant will split off its consumer division in 18 to 24 months, the company said in a statement. The unit has been beset by lawsuits involving products such as baby-powder, which has been linked to ovarian cancers in some users. J&J shares gained 2.7 per cent in trading before US markets opened.
J&J’s pharmaceutical arm has long been its strongest performer. The drug unit generated 55 per cent of the company’s sales in 2020, with another 28 per cent coming from the medical device unit, and 17 per cent from the consumer arm. Altogether in 2020, J&J made $83 billion in revenue, and analysts estimate $94 billion in 2021 sales.
The company is still weighing options for the structure of the split, Chief Financial Officer Joseph Wolk said in an interview.
“We’re still, I’d say, in the early stages,” Wolk said. “We’re looking at either a spin option or an IPO split option, and we’re going to take a little more time to see what the market indicates to us is the best path forward.”
The company didn’t outline financial terms of the proposed move in detail, though it said the transaction would be tax-free and that it expected to continue to pay dividends at least at current levels. Investors could potentially receive new shares of the consumer health company, or might trade J&J shares for those of the new health company, Wolk said.
J&J has gained just 3.6 per cent this year through Thursday’s close. Meanwhile, rival Pfizer has risen 36 per cent, while Eli Lilly & Co. has surged 55 per cent and Merck & Co. 7.7 per cent.
J&J’s decision comes just days after General Electric Co. said it would break itself into three pieces. While conglomerates made up of many disparate businesses were once numerous, many of the old giants that once dominated the global business landscape have broken up into smaller entities that executives say can be nimbler in responding to rapidly shifting economic trends and consumer preferences.
Other pharma giants are sharpening their focus on profitable core drug-development efforts. GlaxoSmithKline plans to spin off its consumer business, a joint venture in which Pfizer holds a minority stake. Novartis is unwinding its shareholding in Swiss rival Roche Holding, a move that could yield cash for deals, and has announced a strategic review of the Sandoz generic-drug unit.