Johnson & Johnson: Powdering liabilities
Business
Founded in 1886, Johnson & Johnson (J&J) is the single largest pharma company in the world and is worth $428.7 billion in market cap.
Essentially operating in three segments, namely: Consumer, pharmaceutical and medical devices, Johnson & Johnson has been long known and trusted for its wide range of products.
What the company is also known for is its impending talc lawsuits!
The smart move: Dropping off
Last week, J&J’s new subsidiary- LTL Management LLC (LTL), which was assigned responsibility for equitably resolving all current and future talc claims, declared bankruptcy in the U.S. Bankruptcy Court for the Western District of North Carolina.
To douse public’s ire, the multinational parent company seemingly approved to fund the subsidiary with a $2 billion trust, along with royalty streams of more than $350 million to deal with bankruptcy and litigation obligations.
Thousands of lawsuits over years
Between 2019 and 2021, thousands of plaintiffs argued that talc-based baby powder contains asbestos, a known carcinogen and is responsible for peritoneal mesothelioma as well as ovarian cancer.
J&J’s anticoagulation medication Xarelto has also generated thousands of lawsuits with reported injuries including blood clots, deadly bleeding events, and lethal infections.
In June 2021, J&J was asked by a Missouri court to pay $2.1 billion in damages to women claiming the use of company's talcum products caused their ovarian cancers.
History of lawsuits
Texas’ business-friendly law: The divisive merger
As per this law, a divisive merger is a merger involving splitting up one company into two or more new companies. This law allows companies to house liabilities in one entity, and continue normal operations in the other.
One of the first companies to use this legal strategy was lumber giant, Georgia-Pacific by its Bestwall declaring bankruptcy.
With over 35000 pending cases and billions of dollars in litigation claims, the only way for J&J to significantly pay less to victims was leveraging this law.
Win-win situation?
Now that the J&J subsidiary has filed for bankruptcy, all litigation stops and will be on hold for years. It is also ensured by Moody’s Investors that the credit ratings of Johnson & Johnson won’t be affected by the filing.
Despite facing trials for more than two decades now, J&J has been recording increasing revenue as well as profitability till date.
The monetary threat posed by public claims has been offloaded and there is nothing that is left to be ‘healed’.
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