Johnson & Johnson to split into 2 public companies
Investors sent stock up 1.2% to $165.01 on Friday
Johnson & Johnson announced Friday it will split into two publicly traded companies, separating its lucrative pharmaceutical and medical devices divisions from the consumer products business known for Band-Aid, Tylenol and its namesake baby shampoo.
This is the latest high-profile separation by a legacy company — coming the same week that General Electric announced its breakup plan and the same day as Toshiba — signaling that investors increasingly see value in smaller, more streamlined enterprises over sprawling conglomerates.
Johnson & Johnson will headline the larger pharmaceutical and medical device business — which includes its coronavirus vaccine manufacturing. The divisions brought in nearly $13 billion in the most recent quarter.
The other company will be built around such well-known brands as Tylenol, Listerine and Band-Aid, assets that brought in about $3.7 billion in the most recent quarter. It is referred to in the company’s announcement as “The New Consumer Health Company.”
Investors appeared warm to the idea, sending stock up 1.2% to $165.01 on Friday. The company has a market value of $434.4 billion.
Analysts say this week’s carve-outs mark a retreat from the empire-building of the 1960s that accelerated in the 1980s under such corporate titans as Jack Welch of GE — which put its stamp on everything from jet engines and refrigerators to lightbulbs. Separation allows the parts to support one another, they say, and investors increasingly believe they can unlock better returns over time.
“We went through a period where all sorts of companies and CEOs decided
they were just going to buy everything, in the old Jack Welch days, and you ended up with these hodgepodge,” said Michael Farr of the investment firm Farr, Miller & Washington. “More effective CEOs said: ‘Wait a minute. I need to make sure this is strategically and logically integrated with everything our core business is doing.’”
Corporate splits usually occur under one of two situations, he said. In the first, investors feel there isn’t enough symbiosis among the disparate divisions. In the second, which Farr says applies in the Johnson & Johnson scenario, investors feel a company’s value isn’t being properly recognized by the market.
Johnson & Johnson has seen faster growth in its pharmaceutical business, home to its single-shot coronavirus vaccine, compared with other parts of the company. In the year ended Sept. 30, the unit recorded a 13.2% increase in sales.
By comparison, its consumer products unit, which includes beauty and skin-care brand Neutrogena, alongside its array of medicine cabinet staples, reported a 4.1% increase in revenue.
In a call with investors Friday, chief executive Alex Gorsky said the company’s board and executive team had been reevaluating whether Johnson & Johnson’s “broad-based approach” was in its best interests.