Johnson & Johnson to spin off consumer business
Johnson & Johnson is to spin off its consumer products division, best known for Band-Aids and baby shampoo, as the world’s largest healthcare company seeks to focus on pharmaceuticals and medical devices.
The division, which is forecast to generate $15bn in sales this year, will be split off in 18 to 24 months, most likely via a stock offering. The company plans to make the transaction tax-free and keep the overall dividend at the same level.
Shares in J&J gained 4.3 per cent to $170.01 in pre-market trading in New York. It is the latest in a wave of well-known global companies to announce plans to split up this week, following US industrial conglomerate General Electric and Japan’s Toshiba, in an effort to slim down and focus on individual businesses.
Alex Gorsky, J&J’s chief executive, said the planned separation 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”.
Gorsky is starting the process before he hands over the reins to his successor Joaquin Duato at the start of next year. Duato, currently vice-chair of the executive committee, has been at the company for three decades and will lead the new slimmed down J&J.
J&J is following many other large pharmaceutical companies that have shed their consumer divisions, including GSK and Pfizer, which formed a joint venture from their consumer health units that they plan to spin off in the middle of next year. The pharmaceuticals industry is shifting towards slimmed-down companies focused on innovation, including high-priced specialist drugs. J&J’s pharmaceutical and medical devices divisions are forecast to generate $77bn in sales in 2021.
Gorsky said the separation would allow J&J to focus on “delivering industry-leading biopharmaceutical and medical device innovation and technology”, while the new consumer health company would be “a global leader across attractive and growing consumer health categories”. The company said it will give shareholders “a more targeted investment opportunity”.
The company’s consumer health division accounted for 30 per cent of its growth in 2020, according to analysts at Barclays, and is part of a $270bn sector in which pharmaceutical groups compete with consumer goods makers such as Reckitt Benckiser and Nestlé.
Companies in the sector have sought to tap into consumers’ growing desire to manage and maintain their own health, especially in ageing populations and in territories where state healthcare is struggling. The J&J division, which owns brands such as Tylenol painkillers and Nicorette stop-smoking aids, reported 3.1 per cent organic sales growth in 2020.
Analysts have predicted the highly fragmented consumer health sector would ultimately consolidate. For instance, of the companies that compete in that space, only GSK and J&J have more than 5 per cent market share globally.
The consumer division also made talcum powder, which has been the subject of lawsuits claiming that it contained a carcinogen, which the company vehemently denies. J&J recently spent $1.4bn on a contentious legal manoeuvre that created a subsidiary to manage the multibillion-dollar claims. It stopped selling talcum powder in the US and Canada last year.