Two giant corporations, General Electric and Johnson & Johnson announced this month that they will split into multiple entities, with General Electric splitting into three companies: energy, aviation, and health care, and Johnson & Johnson into two businesses: one for consumer products and another for pharmaceuticals.
According to market speculation, Johnson & Johnson may be hoping to reduce the risk of litigation against its consumer business after facing lawsuits over accusations that the talc in its baby powder caused cancer in some consumers. But the Wall Street Journal reported that Johnson & Johnson has denied that the decision to split up the company was influenced by the lawsuits. Johnson & Johnson’s board of directors and management team believe that separating the consumer health business is the best way to accelerate their efforts to serve patients and grow.
Meanwhile, GE, based in Boston and known for producing engines and turbines among other objects, has seen its performance crumble in recent decades. Analysts claim it is hoping to regain steam by focusing more on each of its core but very different sectors.
GE was never able to bounce back from the financial crisis of 2008. In recent years, the company has struggled with high levels of debt. To simplify the conglomerate’s business structure, the company has sold several of its units.
GE shares have underperformed the market for the last two decades. Since 2009, the stock has lost 2% per year. But it gained over 55% in the last 12 months.
Analysts on Wall Street applauded GE’s decision. The company stated that the proceeds from the recent sale of its aviation financing unit will be used to pay down debt, with gross debt expected to be less than $65 billion by the end of 2021. GE estimates that the spinoffs will cost around $2 billion in transaction and operational costs.
Johnson & Johnson anticipates that its separation will be completed within 24 months. GE expects its healthcare spin-off to begin operations in early 2023, and its energy company in 2024.