Johnson & Johnson Prepares to Untangle Finances Ahead of Planned Split

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The healthcare and consumer-goods giant last month said it would divesting its consumer-health business

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According to a filing with securities regulators, J&J’s consumer-health unit generated $14.1 billion in sales last year, compared with $45.6 billion for pharmaceuticals and $23 billion for medical devices. The company operated 90 manufacturing facilities globally at the end of 2020.

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He said Chief Financial Officer Joseph Walk and his employees have many tasks in front of them, including opening bank accounts for the new company, setting up the new financial system for accounting and reporting, developing employee-benefit plans and serving as an independent auditor. Selecting is included. “Everything you can imagine that exists at Johnson & Johnson today needs to be reiterated for this new company,” Mr Walk said.

The separate firm will market over-the-counter drugs and consumer-health goods, while the rest of the company will continue to sell prescription drugs and medical devices. Those operations are in many respects intertwined. For example, the company typically makes pills for over-the-counter drugs and prescription drugs in a similar process in the same type of facility, he said.

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“Having been a joint business for decades, things have gotten very complicated,” Mr Walk said. “Some of them were for efficiency reasons, others because it just made logical sense.”

Mr Walk said he would become CFO of the rest of the company. He said the board expects a new chief executive and head of finance, as well as potential board members, to lead the new consumer-health business in the first half of 2022.

Deciding which assets fall into which business will require some discretion and judgment, but it is too early to determine how those decisions will be made, he said.

Mr Walk said the company has recently begun to “condemn” the organization, or review the roles of employees in certain functions, to determine which of the two companies they will be a part of. He said an employee is considered part of a new consumer-health business if they currently spend at least 51% of their time working in consumer health. The company had 134,500 employees as of the end of 2020.

Mr Walk said it would take years to divest the company’s wide supply chain, possibly after the transaction closed. He said J&K hopes to manage the supply chain in the interim through transitional service agreements and possible contract manufacturing arrangements. The rest of the business can set up new facilities depending on the number of properties representing its particular business lines, he said.

Companies often set aside parts of their business to unlock value. According to data firm Refinitiv, about 150 global corporate spinoff deals closed through December 1 this year, already surpassing 130 for 2020 and 115 in 2019. Drugmaker Merck & Company, French media company Vivendi SE and freight-transportation company XPO Logistics Inc.

Completed such deals in recent months.

Damien Conover, director of healthcare research at research firm Morningstar, said J&J’s divestment will not be more complicated or challenging than other companies, but questions remain about how issues such as litigation will be handled. Inc.

For example, it is unclear which business will handle future lawsuits related to when the companies were one, he said. A J&J spokesperson declined to comment. The company plunged its liabilities into bankruptcy in October for thousands of lawsuits linking talc-based products to cancer.

“It is very likely that the litigation remains with individual companies and that cash flow is strong enough to support this, but even so, there is a bit of uncertainty,” Mr. Conover said.

[email protected] . on Mark Maurer

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