J&J To Split Into Two

On Friday afternoon Johnson & Johnson announced that it would spin off its consumer division, leaving behind the pharmaceutical and medical devices divisions. The consumer business includes brands like Neutrogena, Listerine, Johnson's Baby and Band-Aid. They are doing something similar to General Electric, where shareholder pressure has resulted in the company splitting off very different divisions. The share price jumped 4% on the news but only ended up 1.2% at the market close on Friday evening.

The theory is that the low-margin consumer division is dragging down the value of the higher-margin medical divisions. The consumer part of the business makes up 16% of group sales and only 11% of the profits. The more important pharmaceuticals operation accounts for 56% of group sales and a massive 69% of the profits.

The split is expected to occur in the next 18 to 24 months. Social media is full of corny jokes about the possibility that both new companies will be called Johnson. Or maybe Big Johnson and Little Johnson.

Once things are clearer, we will reach out directly to clients who hold the stock. For now, we will continue to hold and if appropriate, accumulate this quality counter.