By Dhirendra Tripathi
Investing.com – Johnson & Johnson (NYSE:JNJ) stock jumped more than 5% in Friday’s trading as the company revealed its plan to split its consumer health business into a separate listed entity.
The separation is expected to take 18 to 24 months to complete, J&J said in a release.
The consumer health segment that houses brands such as Neutrogena, Band-Aid, Listerine and Tylenol, is expected to generate revenue of approximately $15 billion in the ongoing financial year. That compares with the roughly $77 billion generated by the pharmaceutical and medical device unit, which also sells the Covid-19 vaccine.
J&J’s Covid vaccine is one of the only three allowed to be sold in the U.S. The other two belong to Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA), respectively.
J&J is the third big company in less than a week to have announced separation of their businesses, General Electric (NYSE:GE) and Toshiba (T:6502) before it. It also echoes a similar process also underway at the U.K.'s GlaxoSmithKline (NYSE:GSK). Conglomerates have tended to traded at discounts to specialist companies in the past, and J&J's current price-earnings multiple of 24 compares poorly to - for example - Eli Lilly (NYSE:LLY) stock, which trades at over 40 times earnings.
As per a reorganization announced on Friday, Alex Gorsky will serve as Executive Chairman of J&J and pass the Chief Executive Officer's role to Joaquin Duato.
According to The Wall Street Journal, J&J has planned the restructuring so as to be tax-free. It is likely J&J would spin out its consumer unit and hold a stock offering, but no decision has been made, Gorsky told the Journal.