Why Johnson & Johnson will unpack
US giant Johnson & Johnson has announced that it will split into two companies. Here's why and what analysts and investors think
Founded in 1886 in the United States, in New Brunswick, New Jersey, by the three brothers Robert Wood, James Wood and Edward Mead, Johnson & Johnson announced in recent days the division into two listed companies.
The group, active in three areas (pharmaceutical, medical devices & diagnostics, consumer), will be divided into a company dedicated to the pharmaceutical-medical sector and another to the consumer. The operation will be completed within 18-24 months.
THE REASONS
CEO Alex Gorsky, CNN reads , revealed that the decision has nothing to do with J & J's woes over the tens of thousands of lawsuits that his talc is at the root of a series of cases of cancer and for which the US giant recently created a special fund of 2 billion to settle the compensation.
Instead, it would be the "best way to ensure long-term sustainable growth and to better respond to demand," said Gorsky. A strategic choice, therefore, aimed at "accelerating efforts in serving our patients, consumers and healthcare professionals".
DRUGS AND MEDICAL DEVICES VS CONSUMER GOODS
The intention is to focus on the growth of more promising segments – in particular, the pharmaceutical one which will keep the Johnson & Johnson name. In fact, although the revenues from consumer products and generic drugs are undeniable, they have recently seen a slowdown. In 2021, the consumer business grew by 1.1%.
Drugs and medical devices, on the other hand, J&J's flagship segments, made up 83% of the company's revenue last year. This achievement far outstripped the consumer goods division, which brought in just 17% of the company's total revenue – on top of the woes mentioned earlier.
WHAT YOU KNOW AND WHAT YET NOT
J&J announced in announcing the separation that it will focus on its booming drugs and medical devices. It is probable, writes Il Sole24Ore , that the division will take place through a spin off and a placement of securities of a newborn consumer group.
As for the top management, for now we only know that at the beginning of next year Gorsky will be replaced by Joaquin Duato . Gorsky, who has served as CEO and president since 2012, will become executive president on January 3, 2022.
IN THE FOOTSTEPS OF OTHER GIANTS
J&J's move mirrors that of other pharmaceutical giants. GlaxoSmithKline (Gsk) and Pfizer also plan to separate their consumer segments to focus on innovation in their most profitable areas such as specialty drugs.
In 2006, the business newspaper recalls, Pfizer had sold the consumer products division to J&J for over 16 billion and in 2019 it had then created a joint venture with Gsk for generic drugs, Gsk Consumer Healthcare.
And a few days ago, General Electric, a giant of Corporate America, also announced that after 129 years it will split into three companies: one for healthcare, one for energy and one for aviation.
WHAT INVESTORS LIKE AND WHAT DON'T LIKE
J&J's announcement was welcomed by investors so much so that the breakup sent share prices soar. In fact, the most cautious investors often believe that a higher value can be obtained from the unpacking of a conglomerate. The same reaction occurred after the General Electric news.
"The spinoff may allow the remaining J & J to be more acquisitive," said Jeff Jonas, asset manager GAMCO Investors Reuters.
However, this is not always the case. In fact, certain types of conglomerates appeal to investors. Big tech companies like Alphabet, Microsoft, and Amazon have spent billions to acquire other companies, and investors don't seem to care.
This is because tech companies tend to appropriate smaller companies with unrelated businesses that they can use to further expand their domain.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-johnson-johnson-si-spacchettera/ on Mon, 15 Nov 2021 09:31:00 +0000.