Johnson & Johnson announced in November its intention to transform its consumer business into a new publicly traded company by November 2023.
The news did not surprise Wall Street.
“The analyst community has been talking about separating J&J for years,” said Jared Holz, healthcare equity strategist at Oppenheimer. “The situation at the moment is critical, simply because people have been very curious or intrigued as to why now.”
Johnson & Johnson is the largest pharmaceutical company in the United States by market capitalization. It was ranked 36th on the 2021 Fortune 500 list of America’s largest corporations based on its total revenue. The company has experienced dividend growth for almost 60 years and has consistently outperformed the S&P 500 for the past 25 years.
“What the market is saying is that companies should focus on their core competencies and let us branch out,” said Louise Chen, CEO of Cantor Fitzgerald. “We’ve already seen several examples of large pharmaceutical companies segregating non-core assets. “
Investor reaction to the spin-off so far has been muted, with the stock only rising slightly on the November news.
“There are certain risks to this execution of segregating the consumer activities,” Chen said. “I think investors are not yet fully convinced of the potential for stand-alone profits of the two companies.”
There are other potential headwinds to the split. The company has faced extensive litigation over the past few years, many of which are ongoing and could result in as yet unknown fines and settlements.
Watch the video above to find out why Johnson & Johnson is going their separate ways and what risks could arise.