As a $465 million Johnson & Johnson opioid lawsuit gets overturned in the Supreme Court, the drugmaker made a decision that will segment its liabilities. Johnson & Johnson will split its company in two, with one half dedicated to its pharmaceutical drugs.
The company says that the split will help it focus on making drugs, but the backstory is littered with liability.
Johnson & Johnson's upcoming corporate split, explained
Following the General Electric three-way corporate spin-off announcement, Johnson & Johnson (NYSE:JNJ) is coming in hot with news of its own split.
The company will split its consumer products and pharmaceutical divisions and effectively create two new companies. On the consumer products side will be Johnson & Johnson's talcum powder, which has produced millions of dollars in damage payouts following decades of lawsuits stating that the product causes cancer.
Will both companies be publicly traded?
Johnson & Johnson plans to list both companies on the public market. The company's name will be reserved for the drug company while the consumer products operation is set to get a fresh name.
"The new Johnson & Johnson and the new consumer health company would each be able to more effectively allocate resources to deliver for patients and consumers, drive growth and unlock significant value," upcoming Johnson & Johnson CEO Joaquin Duato told reporters.
When will JNJ separate?
Johnson & Johnson plans to officially pursue its split now, with the project completed in as soon as 18–24 months. Over the next 1–2 years, investors will get a clearer picture of what's happening to the stock, how it will separate, and what the transition will entail for shareholders (especially those in the retail space).
Why separate companies could protect Johnson & Johnson
Johnson & Johnson reports that the split will help simplify its increasingly complex corporation and focus on its drug operation.
A side effect of the split is that its drug arm will retain liabilities that won't seep out into the consumer products side. Similarly, consumer product lawsuits (like those related to Johnson & Johnson's controversial baby powder) won't be able to impact the progression of drug research and earnings.
Johnson & Johnson's corporate split versus Purdue's lawsuit-filled subsidiary
Purdue Pharma is often considered the villain of the opioid epidemic, but Johnson & Johnson played a key role too.
Johnson & Johnson created a mutant strain of poppy. This allowed the company to manufacture opioids in the U.S. and supply approximately 60 percent of the U.S.-made active ingredients for opioids. Basically, Johnson & Johnson supplied ingredients to other companies while campaigning for the sale of opioids.
Recently, Purdue offloaded its opioid-related lawsuits into a subsidiary that was solely created to house those liabilities and shield against bankruptcy. While Johnson & Johnson's corporate split doesn't necessarily operate in the same way, it shows an inkling of corporate protection.
How JNJ stock is responding to the news
Following the news about the upcoming Johnson & Johnson split, JNJ stock increased about 2.7 percent overnight. The shares have since cooled, but the movement proves that investors are interested in the corporate reconfiguration to come.