The 135-year old Johnson & Johnson (NYSE: JNJ) on Friday revealed its intention to divide the pharmaceutical and medical instrument division from consumer health business, and establish two publicly listed companies. Following the announcement, the stock of JnJ rallied 1.20% or $1.95 to close at $165.01.
The New Brunswick, New Jersey-based company, hopes to finish the aforesaid division in a time span of 18 to 24 months. Following the division, the household goods division, which manufactures bandages (Band-Aid), baby powder, Listerine, Neutrogena skin care products, and Aveeno, will become a distinct entity. Likewise, the high-risk, fast-growing unit involved in the manufacturing and sales of prescription medicines (including the COVID-19 vaccine) and medical equipment will become a separate entity.
Notably, the pharmaceutical and medical devices unit, which also owns state-of-the-art technologies based on AI and robotics, would retain the iconic name, Johnson & Johnson. Furthermore, Joaquin Duato, incoming CEO of the undivided company, will be in charge of the newly formed entity (pharmaceutical and medical devices operations). As announced earlier, Duato will take control in January. Notably, the pharmaceutical and medical devices operations are forecast to generate revenues of $77 billion.
Likewise, the consumer health company, which is yet to be named, is projected to generate revenues of roughly $15 billion this year. Also, the consumer products firm will bear the responsibility of dealing with the lawsuits alleging that its baby powder caused cancer. The company continues to aggressively deny the allegations.
Interestingly, the company started undergoing a significant transformation under Alex Gorsky, the departing CEO. Gorsky, however, will be retained as the executive chairman of the newly formed Johnson & Johnson (pharmaceutical and medical devices).
Following the division, Johnson & Johnson intends to leave the total dividend “at least at the same level.” Currently, the company pays a dividend yield of roughly 2.60%.
Gorsky also issued a clarification for the splitting of the world’s largest health products enterprise. The CEO stated that the company’s management and board, following a detailed assessment, trust that the division of the company’s consumer product business will expedite initiatives for serving consumers, patients, and healthcare professionals in a better manner. Additionally, the division will generate new opportunities for employees worldwide.
Notably, the announcement has come against the backdrop of similar decisions by industrial giant Toshiba and GE. In 2018, Germany headquartered Merck divested its consumer health care division to Procter & Gamble Co. Also, GlaxoSmithKline plc and Pfizer Inc are laying the groundwork for spinning off their joint consumer health business in 2022.
Investors are expected to realize better value with the split of the company, implying the stock will remain bullish in the short term.
Technically, the stock has firm support at the base of the ascending triangle formation. Additionally, the stock is trading above its 50-day moving average, while the stochastics indicator is rising. Therefore, we are anticipating the stock to remain in an uptrend in the days ahead.
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