What’s going on?
Healthcare giant Johnson & Johnson (J&J) announced plans to split into two separate companies on Friday, as its consumer goods division stands out in all the wrong ways.
What does this mean?
J&J’s star segments – drugs and medical devices – made up 83% of the company’s revenue last year. That really one-upped its consumer goods division: it brought in just 17% of the company’s total revenue, and sure contributed more than its fair share of problems. Crucially, there’s that allegedly cancer-causing baby powder: it brought along a stream of lawsuits and forced J&J to funnel billions of dollars into dealing with the allegations.
Makes sense, then, that J&J wants to spin off its consumer products segment within the next two years. The healthcare giant announced the plan on Friday, saying it wants to focus on its booming drugs and medical devices business. The move mirrors pharmaceutical giants GSK and Pfizer: they also plan to separate their consumer segments and focus on innovating in their more profitable areas like specialist drugs.
Why should I care?
For markets: Investors love a break-up.
J&J’s announcement came just days after General Electric said it would be splitting up its own business. The two are both conglomerates – big firms that operate several unrelated businesses under one roof – and cautious investors often value conglomerates lower than the sum of their parts. So investors were gleeful about the split: they sent both companies’ share prices up after they announced their break-ups.
The bigger picture: Bigger is sometimes better.
There is one type of conglomerate that investors like, mind you. Big tech firms like Alphabet, Microsoft, and Amazon have spent billions on acquiring other firms, and investors don’t seem to mind. That’s because tech firms tend to snap up smaller companies with unrelated businesses, and use them to further expand their dominance.
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Originally posted on November 12, 2021 – Spot The Difference
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