In a recent announcement, health-care conglomerate Johnson & Johnson revealed plans to split its consumer products business from its pharmaceutical and medical device operations, creating two publicly traded companies. This decision has led to a surge in shares during premarket trading. The separation will involve separating its household products unit, known for brands like Band-Aid, Aveeno, Neutrogena, and Listerine, from its division that focuses on prescription drugs and medical devices, including the Covid-19 vaccine. Outgoing CEO Alex Gorsky stated that the separation of the consumer health business is aimed at accelerating efforts to serve patients, consumers, and healthcare professionals, driving profitable growth, and improving healthcare outcomes globally.
The company aims to complete this transaction within 18 to 24 months. The pharmaceutical and medical device division, which includes advanced technologies like robotics and artificial intelligence, will retain the name Johnson & Johnson and be led by incoming CEO Joaquin Duato. The consumer products company, yet to be named, is expected to inherit litigation from lawsuits regarding claims of cancer caused by Johnson’s Baby Powder.
The decision to split the company has been under discussion for some time, with the goal of creating two global leaders in pharmaceutical and medical device business as well as consumer business with iconic brands. The split will provide more agility and capital allocation opportunities. Post-announcement, J&J’s stock saw a more than 3% increase in premarket trading. This move comes in the midst of a major transition following Gorsky’s resignation as CEO, though he will remain as executive chairman of the new J&J company. The company also affirmed that it plans to maintain its current dividend level post-separation. Johnson & Johnson’s decision to split echoes a recent trend of companies, like General Electric, opting to divide into multiple publicly traded entities.
