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J&J plans to split into two companies to separate consumer goods and pharmaceutical companies

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Healthcare company Johnson & Johnson announced plans on Friday to spin off its consumer goods business from its pharmaceutical and medical products and to set up two publicly traded companies. The news sent stocks up in pre-trading hours.

The separation will separate the Household Products division, manufacturers of patches, Aveeno and Neutrogena skin care products, and Listerine from their riskier but faster growing division that makes and sells prescription drugs and medical devices, including their Covid-19 vaccine.

“After a thorough review, the board and management team believe that the proposed separation of the consumer health business is the best way to accelerate our efforts to serve patients, consumers and healthcare professionals, opportunities for our talented global community Create a team and drive profitable growth, and most importantly, improve health outcomes for people around the world, ”outgoing CEO Alex Gorsky said in a statement.

The company hopes to complete the transaction in 18 to 24 months. The Pharmaceuticals and Medical Devices division, which includes advanced technologies such as robotics and artificial intelligence, would keep the Johnson & Johnson name and keep J & J’s new CEO Joaquin Duato at the helm.

Gorsky told CNBC that the company has yet to set a name for the new publicly traded consumer business.

He said the decision to liquidate the company had been discussed by his board of directors since “it came” as it would present “tremendous opportunities” to stakeholders.

“It is in the best long-term interest of all of our stakeholders,” he said in “Squawk Box”. “Our goal is to create two world-leading companies – a pharmaceutical and medical device business that has great potential today … and of course the consumer business with iconic brands.”

Duato will take on the role as planned in January. These segments are expected to generate sales of around $ 77 billion, while the consumer goods division is expected to sell around $ 15 billion in products this year, the company said.

His yet-to-be-named consumer products company will also inherit litigation arising from lawsuits over allegations that its Johnson’s Baby Powder causes cancer, allegations the company has vehemently denied.

Gorsky said the consumer division has four brands alone with annual sales of more than $ 1 billion. The separation will allow the company “even more agility” and “better opportunity to allocate capital,” he said.

J & J’s shares rose more than 3% in pre-trading hours following the announcement.

With Gorsky’s departure as CEO, J&J already went through a major transformation. He will remain in office as Executive Chairman of the new J&J, the company said.

In addition, the company planned to keep the total dividend “at least at the same level” after the change. J&J currently has a dividend yield of around 2.6%.

The announcement comes just days after General Electric announced it would split into three separate publicly traded companies and spin off its medical and energy divisions from the aviation division.

– CNBC’s Berkeley Lovelace Jr. contributed to this report.

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