Updated: Nov 19, 2021
Johnson & Johnson said it plans to spin off its consumer health unit that markets Baby Powder and Listerine to concentrate on pharmaceutical and medical devices in the biggest restructuring in the U.S. Company’s 135-year history.
The move is described by analysts as part of the large-scale plans by big, diversified corporations across the globe to simplify their structures to boost focus. This has specifically been the case in the healthcare industry where the slow-and-steady business of selling products such as moisturizers and shampoos has increasingly moved away from the high-risk, high-reward business of manufacturing and marketing blockbuster drugs.
“We think these have evolved as fundamentally different businesses,” J&J Chief Executive Alex Gorsky disclosed.
Rival public consumer firms are typically valued more richly by investors than the J&J consumer division, Chief Financial Officer Joseph Wolk reiterated in an interview.
“That, quite frankly, was getting lost within Johnson & Johnson,” Wolk said. “Similarly, I think – in terms of pharmaceuticals and medical devices – that prevented the spotlight from being shone on those businesses.”
The firm disclosed that it intends to complete the restructuring in 18 to 24 months at a cost of $500 million to $1 billion. Based on the plans, the pharmaceutical and medical devices division will retain the J&J tag, and the company anticipates a tax-free spinoff.
Some industry analysts have called for investor caution, as J&J shares, part of the Dow Jones Industrial Average (.DJI) grew by 1.5%.
“Historically, when the market becomes fully valued, we see a great number of spins being announced as companies look for alternative ways of creating more shareholder value,” noted Jim Osman, CEO of research company Edge Consulting Group.
“It is something worth noting for the investors.”
Prior to the announcement, Johnson & Johnson’s Band-Aids baby shampoo and cough medications were for a long time the face of the J&J brand.
However, the firm’s pharmaceutical and medical equipment business, which manufactures surgical tools, cancer treatments, and vaccines, anticipates approximately $80 billion in revenue this year, far above the $15 billion its consumer products are anticipated to rake in.
The higher growth projection comes despite disappointing sales of Johnson & Johnson’s COVID-19 vaccine following a number of production issues and fierce rivalry from Pfizer and Moderna.