Actions of Johnson & johnson (JNJ – Free Report) rose 1.2% on Friday after announcing plans to split its Consumer Health segment into a new publicly traded company, leaving behind a new J&J with its Pharmaceuticals and Medical Device units.
J & J’s pharmaceutical and medical device units are expected to generate revenues of $ 77 billion in 2021 and remain one of the most powerful drug makers in the world.
J & J’s Consumer Health includes a wide range of products covering the areas of baby care, beauty / skin health, oral care, wound care and women’s health, as well as pharmaceuticals for sale. free (OTC). Some iconic J&J consumer brands are Neutrogena, Aveeno, Tylenol, Listerine and Band-Aid. The Consumer Health segment is expected to generate around $ 15 billion in sales in 2021.
J&J believes that the separation of the Consumer Health unit would drive growth and unlock significant value, as its pharmaceutical and medical device units are relatively higher growth, higher margin companies.
The separation of the Consumer Health unit is expected to be completed within the next 18-24 months, pending the necessary approval from the board of directors and regulators. The remaining pharmaceutical and medical device company will continue to use the Johnson & Johnson name and will be led by new Managing Director (CEO) Joaquin Duato. Duato will replace current President and CEO Alex Gorsky, effective January 3, 2022. J&J will later announce the name of the new publicly traded Consumer Health company.
J&J’s stock price hike on Friday suggests that investors, in general, are bullish on J&J’s decision to go out of business. However, a group of analysts believe that J & J’s talc liabilities motivated the decision to separate the Consumer division. Some analysts have criticized the move on the grounds that it would reduce the scale and diversity of the company, seen by some as J & J’s greatest competitive advantage. This year so far, J&J shares are up 4.8% from the industry’s 16.2% increase.
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Another major drug maker, GlaxoSmithKline (GSK – Free Report) is also set to separate its Consumer Healthcare segment into a stand-alone company in 2022. Glaxo will split into two UK-based global companies – one specializing in prescription drugs and vaccines, the other focused on healthcare consumer / over-the-counter health care products. (OTC) drugs.
In 2019, Glaxo and Pfizer (PFE – Free Report) have merged their consumer healthcare unit into a new joint venture (JV) to create the world’s largest consumer healthcare company. While Glaxo owns a controlling 68% stake in the joint venture, Pfizer owns 32%.
The joint venture operates globally under the name GSK Consumer Healthcare. Pfizer deconsolidated Pfizer Consumer Healthcare from its financial statements following the closing of the transaction.
The deal brought together popular OTC brands like Sensodyne from Glaxo, Voltaren and Panadol and Advil, Centrum and Caltrate from Pfizer. In 2019, Glaxo announced its intention to separate GSK Consumer Healthcare into an independent company within three years of the closing of the transaction.
A few years ago another major drug manufacturer, Merck (MRK – Free Report) sold its Consumer Care business to Bayer for $ 14.2 billion in October 2014 in order to focus on its core areas of expertise, namely pharmaceuticals and vaccines.
Merck’s Consumer Care unit included a portfolio of well-established product brands, such as Claritin, Afrin and Coppertone.
J&J currently has a Zacks Rank # 3 (Hold). You can see the full list of Zacks # 1 Rank (Strong Buy) stocks today here.