Johnson & Johnson spin off: what does it mean for JNJ shares?

Screen showing share price of 22,450
Rebecca Cattlin
By :  ,  Financial Writer

Johnson & Johnson announced in November 2021 that it’s spinning off its consumer business into a new, publicly traded company by November 2023. Find out everything we know about what it could mean for JNJ shares and shareholders.

 

Johnson & Johnson consumer spin off

Healthcare giant Johnson & Johnson (JNJ) is expected to spin off its consumer arm, most commonly known for its plasters, baby shampoo and Listerine brand of mouthwash. This move marks the largest restructuring in the company’s 135-year history.

The spin off is expected to be completed by November 2023 – plans started in November 2021 and were given a timeframe of 18 to 24 months. The company estimates the cost will be between $500 million and $1 billion.

JNJ expects a tax-free spin off, which means they’ll be listing at least 80% of the business, which is the minimum required for a tax-free process.

Learn more about how demergers and spin offs work

The consumer division made J&J $14.6 billion last year but is still not as highly valued as other rival consumer units, and not as successful as the other J&J segments. Most of the demand for over-the-counter products were driven by the Tylenol, Neutrogena and Aveeno products, which had market growth during the Covid-19 recovery.

 

 

Why is Johnson and Johnson going to split?

Johnson and Johnson’s split is aimed at refocusing the business and streamlining its operations. By removing the consumer arm, Johnson and Johnson will put more into developing medicines and medical devices, which brought in around $80 billion for the firm combined.

The medical arm of JNJ had disappointing sales after competitors’ Covid-19 vaccinations were more successful, but it still has a higher growth outlook. The spin off shouldn’t fundamentally change the operations of either business but will separate the lower-growth consumer unit from the higher-growth segments.

When the market becomes so competitive and high valuations stream in, we see a lot of spin offs occurring to increase shareholder value.

The company’s Chief Financial Officer Joseph Wolk has said previously that the consumer division “…was getting lost within Johnson & Johnson" but the structure also prevented the spotlight from being shone on the pharmaceutical and medical device businesses.

The plans by Johnson and Johnson are part of a much wider trend of large, diversified companies simplifying their structures by demerging various segments and subsidiaries. The strategy seems particularly popular among healthcare businesses, who are moving further into the higher-risk, higher-reward drug field.

Other upcoming spin offs include:

What happens to JNJ stock when the company splits?

Once Johnson and Johnson splits, JNJ stock will only give traders and investors exposure to the medical device and pharmaceutical proceeds of the company. The new company, which has yet to be given a name or ticker, will trade separately.

The JNJ split is expected to make more shareholder returns, as each business won’t be diluted by the others. Investors will have a clearer image of each division and what makes it attractive.

Following the news, back in November 2021, shares of J&J traded 1.5% higher at $165.55. Over 6 months on, shares of JNJ are worth over $170 each despite the global economic slowdown. That’s largely because the firm is one of the largest defensive plays on the market, as there is always a demand for consumer health goods and medical products.

After the split, shares of JNJ might not be such a bold defensive play, as the company won’t be as diversified. The sheer scale of operations has somewhat protected JNJ stock from volatility and breaking that up could have a negative impact on the company’s stability.

 

What does the J&J split mean for shareholders?

If you currently own shares of Johnson & Johnson, when the company splits, you will own shares of both Johnson & Johnson – which will be the new pharmaceutical/medical device business – as well as the new yet-to-be-named consumer health business.

This will likely come in the form of a special dividend, which is how most spin offs take place.

 

How to trade JNJ shares with City Index

You can speculate on whether JNJ shares will rise or fall in the run up to the demerger with City Index in just four easy steps:

  1. Open a City Index account, or log in if you’re already a customer
  2. Search for ‘JNJ’ in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade

Alternatively, you can start share trading risk free by signing up for our demo trading account.

 

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