Reactions to J&J’s Plans to Split Into Two Companies

Reactions to Johnson & Johnson's Strategic Company Split

(Reuters) – Healthcare conglomerate Johnson & Johnson is spinning off its consumer health division that sells Listerine and Baby Powder, to focus on the more-profitable pharmaceutical and medical device market.

Following are a few comments from analysts and investors:

JEFF JONAS, ASSET MANAGER, GAMCO INVESTORS

“It (spin off) makes sense in that it’s a lower growth, lower margin business. Frankly, it’s a struggle, ever since those manufacturing issues … It’s been a long, difficult recovery from that. And then COVID didn’t really help and the lack of a cough cold season last year didn’t really help.”

“They’ve always done a lot of smaller deals and occasionally done a big deal like Actelion. They certainly have a balance sheet that could afford to do anything. Ultimately, when they do finish the consumer spin off, they’ll probably raise a little bit of cash and put a little bit of debt on the consumer business, which would give them more money to do deals.”

JOANNE WUENSCH, ANALYST, CITI

“Combined, each will likely deliver a dividend at least at the same of JNJ today and seeking to maintain its AAA rating.”

“We believe this decision was likely accelerated by the pandemic and the increasing move towards personal healthcare, telehealth, and technology-driven products.”

DAMIEN CONOVER, ANALYST, MORNINGSTAR

“The firm’s timing is surprising, as we don’t see any major catalyst for the move. However, if the consumer division no longer holds the deep pockets of the combined company, the risk of future consumer product litigation–such as the large talc settlement–may decrease.”

“While we agree with management’s assessment that the breakup will allow both new companies to operate with more focus and agility, we don’t believe the current structure has impeded much operational execution in the past.”

ASHTYN EVANS, ANALYST, EDWARDS JONES

“For pharma companies, this has been something pretty common over the last 12+ years. We see more and more companies focusing on innovative drugs.”

“But this does come as a surprise, because J&J has been this huge healthcare conglomerate for so long, and the most diversified healthcare company in the world. So it does come as a surprise that they are choosing to end that, at least on the consumer side.”

S&P GLOBAL RATINGS

“We view this as incrementally weakening the business strength, given the reduction in diversity and scale, even as this enhances the company’s growth rate and profitability.”

JOSHUA JENNINGS, ANALYST, COWEN AND CO

“We do not believe JNJ’s ongoing talc litigation spurred the decision, and we expect investors to look favorably on the transaction.”

SHANNON SACCOCIA, CHIEF INVESTMENT OFFICER, BOSTON PRIVATE

“I think this is just an example of delivering value to shareholders by specializing the businesses. I don’t think (talc liabilities) were a prevailing factor in this decision.”

“The J&J management has realized that fact that the value that’s been afforded to them by the market is probably not as much as one should expect given the strength and the leadership in those three businesses.”

MOODY’S INVESTORS SERVICE

Views announcement as credit negative, which reflects “the reduction in scale, diversity and earnings that will ensue from the transaction.”

“Moody’s will continue to evaluate the credit implications of the separation as more details become available and as the transaction date gets closer”

(Reporting by Manas Mishra, Mrinalika Roy and Dania Nadeem in Bengaluru, and Michael Erman in New York; Editing by Devika Syamnath)