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Spin-off plans for US institution continues trend of announced corporate break-ups
Thursday 18 Nov 2021 Author: Martin Gamble

Johnson & Johnson plans to spin off its consumer products unit which comprise some of the world’s most iconic brands such as Neutrogena, Tylenol and Band-Aid.

The division is expected to generate around $15 billion of revenues in 2021 which represent around 16% of the company’s overall revenues.

Spin-offs or demergers have suddenly become  all the rage with four announced in quick succession over the past few weeks.

General Electric decided to split into three separate companies, Toshiba is contemplating a break-up of its businesses and online trading platform CMC Markets (CMC) is looking to separate its leveraged and unleveraged businesses.

The underlying logic behind all these moves is a desire to unlock so-called hidden value associated with conglomerates and to increase focus and drive growth in the separated companies.

In theory investors will pay more for a business when it is unshackled from its parent because it has access to its own cash flows and can make capital allocation decisions which maximise its future value.

For example, the Financial Times reported that the investors might pay an extra 15% for Johnson & Johnson’s businesses should they trade separately.


Johnson & Johnson’s move mirrors that of UK pharma group GlaxoSmithKline (GSK) which is due to spin off at least 85% of its consumer healthcare division in the middle of next year.

That sets up a potentially intriguing battleground between the two largest consumer healthcare companies in the world as they go head-to-head to consolidate what both companies admit is a fragmented market.

The businesses are similar in size with GSK’s consumer health division forecast to have revenues of around £10 billion or $13.4 billion at current exchange rates.

Johnson & Johnson claims to be a global leader with a ‘powerful’ portfolio of iconic brands comprising four $1 billion megabrands and 20 brands over $150 million.

It has leading positions in over the counter self-care, skin health and essential health including baby care, feminine care and oral health.

Following the merger of GSK’s and Pfizer’s consumer healthcare divisions in 2019 the combined business claims market leadership in over the counter pain relief, respiratory products, and vitamins.

The company also claims leadership positions in the important US market with a 10.5% market share and Asia overall (number two in China) and a third of revenues are generated in emerging markets which are expected to have faster growth.

An ageing global population and increasing desire for consumers to manage their own health should underpin future organic growth on top of anticipated acquired growth for both companies.

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