Why The Biggest Pharma Company In The U.S. Is Breaking Up

Johnson & Johnson, the biggest pharmaceutical company in the U.S. based on its market cap, announced in November 2021 it plans to spin off its consumer business into a new publicly-traded company by November 2023. Analysts overwhelmingly say it’s a smart business move, but it could also come with some risks. Watch the video above to learn why Johnson & Johnson is splitting itself up and how investors are reacting.

Johnson & Johnson announced in November that it plans to spin off its consumer business into a new publicly traded company by November 2023.

The news didn’t surprise Wall Street.

“The analyst community has been talking about splitting up J&J for years,” said Jared Holz, health-care equity strategist at Oppenheimer. “The timing situation is critical, just because people have been very curious or intrigued as to why now.”

Johnson & Johnson is the biggest pharmaceutical company in the United States based on market cap. It was ranked 36th on the 2021 Fortune 500 List of the largest U.S. corporations based on total revenue. The company has experienced dividend growth for nearly 60 years and has consistently outperformed the S&P 500 for the past 25 years.

“What the market is saying is that companies should focus on their core competencies and let us diversify,” said Louise Chen, managing director at Cantor Fitzgerald. “We’ve already seen several examples of large pharma separating out noncore assets.”

So far, investors’ reaction to the spinoff has been mild, with the stock moving only modestly higher on the news in November.

“There are some risks to this execution from separating out the consumer business,” Chen said. “I think investors aren’t fully convinced yet of the standalone earnings potential of both companies.”

There are other potential headwinds to the split. The company has been dealing with numerous legal challenges over the past several years, many of which are ongoing and could result in as-yet-unknown fines and settlements.

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Why The Biggest Pharma Company In The U.S. Is Breaking Up

[richard]

When I heard that Johnson & Johnson is splitting into two separate companies, I assumed they’d be called Johnson and Johnson.

[jalenad]

If you split the company into sections, it divides their liabilities in case a person sues the company.

[chibiu]

Company A takes all the liability.
Company B takes all the assets.
Company A files for BK.

[rizzospacerat]

2. Points: Putting the liabilities for a product of an ongoing law suite in an offspring company and beeing able to file that bancrupcy independently from the mother company is one giant ass move and that this is even possible is just a deep indication how unjust the US judicial system is. Individual People are put behnd bars for minor reasons, but selling cancer stuff to babies....oh yeah i cut of a piece of hair from myself and burn it, no reason to worry.
Second: First few minutes: It creates alot os shareholder rest of the video is analyist bullsh***.

[Mesozoic_mammal]

Wow that comes in handy! When you are threatened by lawsuits just spin of your valuable assets to protect them from any claims. Could you imagine if regular citizens were allowed to act like those at the top?

[AbadiesPotters]

With around $120k invested in Palantir stocks, any suggestions for additional stocks to diversify across various markets? Looking for a well-rounded portfolio that balances risk aversion with returns meeting yearly inflation concerns.

[lil_lyrix]

I can't believe Johnson and Johnson are breaking up, thought they'd be together forever.

[cw]

Because of money.
Merck did it last year btw. It's a new trend.

Splitting products lines with different profitability to give them each the attention they need.
Shareholders keep shares of both companies. Employees are not fired like they may have been by selling divisions to competitors. It's a win win situation.

[Luftpvp]

Because they want to avoid full possible repercussion from lawsuits due to their baby powder fiasco with long term health effects

[Breathingdeeper]

When reps from the company say we're doing x but not because of y and z, it is exactly because of y and z

[ec]

So then they'll be split in two companies, Johnson and Johnson.

[chiquita]

They are trying to separate out the lawsuits into a single company that they can bankrupt to not pay out victims? It should be effective

[milanobus]

Let's be honest. It's so they can file for bankruptcy after the baby powder lawsuits, while keeping the rest of the company solid.

[georgesealy]

Merk split off a company last year. It happens a lot. JNJ investors will do well with this split.

[Kelz_X]

Basically because of Lawsuits.
That’s basic business 101

[HKSFMD]

To limit financial liability as a result of all the lawsuits they're losing.

[IraJavier]

Congrats on winning the lawsuit. Unfortunately the original conglomerate is no longer a thing and the resulting new companies are separate legal entities.

[elizabethcherry]

They been doing this business practice in the taxi industry for years, all it is if one has a liability the others don't share that liability, it's a legal loop hole to make the rich stay rich.

[xsliquidity]

I wonder if I can spin-off my liabilities while keeping my assets. I wish I had the rights of a corporation.

[mattjohnryan]

New company names - Johnson 1 and Johnson 2