Why and when will it split

Four J’s are better than two?

Shares of Johnson & Johnson rose in pre-market trading Friday after the multinational health giant said it plans to split its operations into two separate publicly traded firms—essentially spinning off its consumer products unit and turning J&J into a company more narrowly focused on pharmaceuticals and medical devices. The news follows a similar move by General Electric, which earlier this week said it would split up into three separate companies. 

Here’s what you need to know about J&J’s announcement: 

What will these companies look like? 

  • Consumer health company: Following the separation, this company will comprise J&J’s consumer brands, such as Band-Aid, Tylenol, Aveeno, Neutrogena, Listerine, and many others. According to the announcement, this company will include four $1 billion “megabrands,” along with 20 others worth over $150 million. They include skin products, essential health products, oral health, baby care, feminine care, and wound care. On its own, this company is expected to deliver 2021 revenue of $15 billion. J&J has not announced a name for this new entity. 
  • Pharmaceutical company: This company would be the much larger one. It would retain the name Johnson & Johnson and focus on pharmaceuticals, medical devices, and healthcare. It would include J&J name-brand treatments such as Darzalex, Erleada, Imbruvica, and Stelara. According to J&J, this unit on its own is expected to generate $77 billion in 2021. 

Why is Johnson & Johnson doing this? 

The company says both units will be better positioned to succeed and grow as separate entities. J&J’s pharmaceutical business has been growing at a faster clip, added in part by its COVID-19 vaccine, which added $502 million to its sales in the third quarter of this year. The unit’s sales grew $13.8% in the quarter versus the consumer health division, whose sales grew 5.7%.

Here’s what J&J CEO Alex Gorsky had to say in a statement: “Following a comprehensive review, the Board and management team believe that the planned separation of the Consumer Health business is the best way to accelerate our efforts to serve patients, consumers, and healthcare professionals, create opportunities for our talented global team, drive profitable growth, and—most importantly—improve healthcare outcomes for people around the world.”    

When is this happening? 

The organizational changes should be in place by the end of next year, pending legal requirements, including “consultation with works councils and employee representatives,” according to the announcement. J&J says the full separation should be completed within 18 months to two years.