Johnson & Johnson follows GSK with plan to split into two standalone firms

·2-min read
Johnson & Johnson logo on a package of Band-Aid (AP)
Johnson & Johnson logo on a package of Band-Aid (AP)

JOHNSON & Johnson today announced plans to follow peers like GSK and Merck by breaking its vast healthcare empire into two standalone companies.

The US giant will spin off its consumer arm, whose mass-market products include Band-Aid plasters and Johnson’s Baby Powder bring in stable annual revenues of $15 billion a year.

The move over the next two years will leave its riskier but higher-margin prescription drugs and medical devices divisions - which account for $85billion in annual sales - as a separate entity.

CEO Alex Gorsky said the corporate schism - the biggest reorganisation in the household name’s 135-year history - reflects growing divergence between the two businesses and their markets, a trend accelerated by the pandemic.

He said "The best path forward to ensure sustainable growth over the long term and better meet patient and consumer demands is to have our consumer business operate as a separate healthcare company.”

The final structure of the two companies has yet to be decided but it is possible the consumer unit would be floated as a separate company once the divorce is complete.

It will stand alongside Reckitt Benckiser, Procter & Gamble, Nestlé and L’Oréal as one of the industry’s biggest players.

 (REUTERS)
(REUTERS)

The company dismissed suggestions the split-up was connected to potential liabilities arising from legal claims alleging its baby power is linked to ovarian cancer.

GSK, the London-based pharma giant, is in the process of completing a similar move by carving its Sensodyne, Nicorette and Panadol manufacturing arm into a new listed company.

Rival drugmakers including Pfizer and Merck are engaged in similar moves as they double-down on faster-growing pharmaceuticals.

The companies expect to strengthen growth by focusing each business around core competencies but risk losing the cushion of a diversified business model where weakness in one area can be offset by strong sales in another.

J&J, headquartered in New Jersey and with 135,000 employees, is one of the world’s biggest and most valuable companies with operations in 60 countries.

J&J’s consumer unit sales rose 1.1% to $15 billion last year against the pharma arm’s 8% rise. Its shares gained 4% to $170 in pre-market trading in New York.

GSK last month announced plans to sell off its landmark HQ in west London and move 800 staff into a new consumer campus in Weybridge.

It is hunting for a new base for the remaining 3500 employees of the nascent New GSK research unit.

Merck is planning to spin off its women’s health arm into a separate publicly traded company as it focuses down on research into cancer drugs and vaccines.

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