Why Is Johnson & Johnson Splitting Into Two Companies?

The conglomerate will be separating its consumer products from its pharmaceutical drugs and medical devices.


Health products company Johnson & Johnson announced this morning that it will be splitting into two separate, public companies, leaving many shareholders wondering what this means for stock prices. For now, the move seems to have caused a slight bump to the current firm’s price, with shares rising from 163.04 to 167.43 within minutes of the day’s open.

Johnson & Johnson stated in a press release that the separation would allow each business to “pursue more targeted business strategies and accelerate growth.” As a general rule, the medical devices and drug part of the company saw much faster growth than the relatively stable and low-risk consumer health side of the company. Its consumer health products sales have grown approximately 0.7% a year over the past two years. On the other hand, its pharmaceutical sales grew by an average of 5.8% over the past two years.

Some have also wondered if the split has anything to do with J&J’s recent asbestos scandal. The company was accused of producing and selling talc baby powder with the cancer-causing chemical inside. The accusation has led to approximately 38,000 lawsuits against the company.

In a move that seemed to foreshadow today’s split, J&J separated off the portion of the company that dealt with the baby powder and created a new company called LTL. LTL filed for bankruptcy in October, making it difficult, if not impossible, for plaintiffs to recover the full amount of monetary damages they were seeking.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

CalSTRS New Headquarters Construction Delayed

The setback is expected to cost the pension between $15 million to $21 million.


The California State Teachers’ Retirement System (CalSTRS)’s anticipated $300 million headquarters expansion has been delayed due to permitting issues, which took longer than expected due to COVID-19. The delay is expected to cost CalSTRS at least $15 million, meaning the pension will have to look for alternative ways to finance the project.

Currently, ideas include leasing parts of the building while it is still under construction or issuing additional bonds to cover construction expenses.

“We want to make sure we build that risk into our budget numbers,” said Lisa Blatnick, chief operating officer (COO) of CalSTRS. “Based on initial research, issuing additional bonds to cover the construction expenses is looking super positive.”

Blatnick told the pension fund’s board that she would have a more definitive report about total costs ready in time for the January board meeting. At that point, she expects she will be able to completely confirm financing options and ask the board to approve a new finalized budget. “We really feel like between now and then, all of the variables that we still have left will be figured out,” she said.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

The new CalSTRS headquarters building, which will be located in West Sacramento, has been in the works since 2018. It reflects CalSTRS’ desire to keep as much of its portfolio management in-house as possible. “The more investments we can manage in West Sacramento, the less we have to pay external Wall Street firms,” CIO Christopher Ailman said of the project.

This story has been updated to reflect that COVID-19 was the main reason for the delay, not issues with the curtain wall. 

Related Stories:

CalSTRS Expected to Hit Full Funding Five Years Ahead of Schedule

CalSTRS CIO Set to Receive $1.1 Million Bonus

CalSTRS Earns Record Annual Return of 27.2%

Tags: , , , , ,

«