Why Toshiba and Johnson & Johnson are the latest corporate behemoths doing the splits

Published

2 years ago

November 12, 2021

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Three is a trend, so the saying goes.

So news of two more big company demergers today, hot on the heels of the three-way break-up of 129-year-old US industrial giant General Electric announced on Wednesday, suggests that “doing the splits” is being looked at anew by company boards.

Toshiba, one of the best known companies in Japan, announced that it is breaking itself up – also splitting itself into three separate businesses.

The 146-year old company said one of the them would be focused on infrastructure, including products and services such as water treatment, trains, power turbines and nuclear-plant maintenance.

A second will be focused on electronic devices such as power semiconductors.

The third business, which will retain the Toshiba name, will manage the company’s stake in the flash-memory company Kioxia Holdings and other assets.

The move follows an accounting scandal six years ago – after which activist shareholders urged the company to break itself up.

The measure, however, may not go far enough with those investors that had wanted Toshiba to go private.

It received – and rejected – a takeover proposal in April from CVC, the private equity group, valuing it at $20bn.

Toshiba’s move attracted a good deal of interest since it has echoes of the GE announcement which, in turn, was at least partly inspired by similar moves two years ago by the German industrial stalwart Siemens.

Hot on the heels of that news came the announcement that Johnson & Johnson, the $429bn healthcare and consumer goods giant that is America’s 12th largest public company, is to split itself in two.

J&J, the world’s biggest healthcare company by both sales and market value, will hive off its consumer health business, the owner of brands such as Band-Aid, Listerine, Tylenol, Neutrogena and the eponymous Johnson’s baby oil, into a separate company.

The core J&J business will retain the company’s existing pharmaceuticals and medical devices businesses.

The consumer health business will be the smaller of the two but will still be a substantial company, with annual sales of $15bn a year, in its own right.

Like Toshiba, J&J has had a difficult few years, becoming embroiled in a costly legal battle with the US state of Oklahoma over its past sale of painkillers.

More recently it has been dogged by allegations – furiously denied – that its talcum powder caused cancer.

But Alex Gorsky, J&J’s chief executive, insisted that the demerger – due to take place during the next 18 to 24 months – was nothing to do with that.

He told the Wall Street Journal, which broke the story: “The best path forward to ensure sustainable growth over the long term and better meet patient and consumer demands is to have our consumer business operate as a separate healthcare company.”

As with Toshiba and GE, J&J is a stalwart of its country’s business scene.

It dates back some 135 years to when three brothers, Robert Wood Johnson, James Wood Johnson and Edward Mead Johnson, launched a business selling surgical dressings, supposedly after hearing a speech by the British surgeon and pathology and antisceptic pioneer Joseph Lister.

J&J sold the world’s first commercial first aid kits and the world’s first women’s sanitary products.

It moved into pharmaceuticals in 1959 and the more predictable cash flow from its consumer goods businesses helped finance research and development into the more up-and-down, but potentially more lucrative, drugs and medical devices businesses.

More recently, though, some investors have become unhappy at the relatively sluggish performance of the consumer goods arm.

Its sales rose by 1.1% last year while the pharmaceuticals arm grew by 8%.

Shareholders these days prefer to focus on specific sectors.

An investor in J&J seeking exposure to its pharmaceuticals business will not, necessarily, want exposure to its consumer goods arm.

Activist investors such as Elliott, ThirdPoint, ValueAct and Starboard are now mighty beasts in the investment world, unafraid to take on some of the world’s largest companies.

No chairman or chief executive wants to see them popping up on their shareholder register.

Taking pre-emptive action, for example a demerger, is one way of avoiding costly, draw-out and debilitating battles with such investors.

J&J’s move is also in keeping with those of other big pharmaceuticals companies.

The German drugs giant Merck sold its consumer healthcare business, which owned brands including the hay fever remedy Claritin and the sun tan lotion maker Coppertone, to Bayer seven years ago.

Pfizer announced at the end of 2018 that it was merging its consumer healthcare business, the maker of Chapstick lip balm, Centrum multi-vitamins and Advil painkillers, with the consumer healthcare arm of Britain’s GlaxoSmithKline.

GSK emerged in effective control of the business and, in February last year, said it would demerge it.

That move effectively is the road that J&J now plans to go down.

But, as with GSK, it is not without risk.

Without the predictable cash flows of consumer healthcare products, the research and development arms of the stand-alone pharmaceuticals businesses will have to be more disciplined, channelling their resources only into work where a positive outcome can be guaranteed.

It was why Sir Andrew Witty, GSK’s former chief executive, always refused to break up the company.

His successor, Dame Emma Walmsley, decided something more radical was required.

Mr Gorsky, at J&J, has clearly reached the same conclusion.

One thing is clear: with three gigantic and storied companies – GE, Toshiba and J&J – all announcing break-ups within days of each other, demergers are very much back on the business agenda.

Business

Rishi Sunak to demand end to ‘sick note culture’ and shift focus to ‘what people can do’

Published

3 hours ago

April 19, 2024

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Rishi Sunak to demand end to 'sick note culture' and shift focus to 'what people can do'

Rishi Sunak is to call for an end to the “sick note culture” in a major speech on welfare reform – as he warns against “over-medicalising the everyday challenges and worries of life”.

The prime minister wants to shift the focus to “what people can do with the right support in place, rather than what they can’t do”.

Mr Sunak also wants sick notes to be issued by “specialist work and health professionals” rather the GPs in order to reduce workloads.

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The plans, which the government is now set to consult on, come as part of the government’s aims to cut spending on benefits in a bid to reduce spending and increase employment.

Mr Sunak is set to say: “We should see it as a sign of progress that people can talk openly about mental health conditions in a way that only a few years ago would’ve been unthinkable, and I will never dismiss or downplay the illnesses people have.

“But just as it would be wrong to dismiss this growing trend, so it would be wrong merely to sit back and accept it because it’s too hard; or too controversial; or for fear of causing offence.

“Doing so, would let down many of the people our welfare system was designed to help.”

He will say there is a “growing body of evidence that good work can actually improve mental and physical health”.

“We need to be more ambitious about helping people back to work and more honest about the risk of over-medicalising the everyday challenges and worries of life,” Mr Sunak will add.

The prime minister will say, “we don’t just need to change the sick note, we need to change the sick note culture so the default becomes what work you can do – not what you can’t”.

“Building on the pilots we’ve already started we’re going to design a new system where people have easy and rapid access to specialised work and health support to help them back to work from the very first Fit Note conversation,” he will add.

“We’re also going to test shifting the responsibility for assessment from GPs and giving it to specialist work and health professionals who have the dedicated time to provide an objective assessment of someone’s ability to work and the tailored support they need to do so.”

It comes after Mel Stride, the work and pensions secretary, was criticised a month ago for suggesting in an interview that there was “a real risk” that “the normal ups and downs of human life” were being labelled as medical conditions which then held people back from working.

And upon launching the government’s “back to work plan”, Chancellor Jeremy Hunt warned that “anyone choosing to coast on the hard work of taxpayers will lose their benefits”.

Since 2020, the number of people out of work due to long-term sickness has jumped drastically to a record high of 2.8 million people as of February this year, according to the latest estimates from the Office for National Statistics.

A large proportion of those report suffering from depression, bad nerves or anxiety.

The government said NHS data shows almost 11 million fit notes were issued last year – with 94% stating someone was “not fit for work”.

“A large proportion of these are repeat fit notes which are issued without any advice, resulting in a missed opportunity to help people get the appropriate support they may need to remain in work,” Downing Street said.

Fit notes are usually required by employers when someone takes more than seven days off work due to illness.

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Disability equality charity Scope has said it would question whether Mr Sunak’s announcements are being “driven by bringing costs down rather than how we support disabled people”.

James Taylor, director of strategy at the charity, said: “We’ve had decades of disabled people being let down by failing health and work assessments; and a broken welfare system designed to be far more stick than carrot.

“Much of the current record levels of inactivity are because our public services are crumbling, the quality of jobs is poor and the rate of poverty amongst disabled households is growing.”

Alison McGovern, Labour’s acting shadow work and pensions secretary, said: “A healthy nation is critical to a healthy economy, but the Tories have completely failed on both.

“We’ve had 14 Tory years, five Tory prime ministers, seven Tory chancellors, and the result is a record number of people locked out of work because they are sick – at terrible cost to them, to business and to the taxpayer paying billions more in spiralling benefits bills.

“Today’s announcement proves that this failed government has run out of ideas, announcing the same minor alternation to fit notes that we’ve heard them try before. Meanwhile, Rishi Sunak’s £46bn unfunded tax plan to abolish national insurance risks crashing the economy once again.”

Business

Post Office had ‘bunker mentality’ towards press, lawyer tells inquiry

Published

3 hours ago

April 19, 2024

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Post Office had 'bunker mentality' towards press, lawyer tells inquiry

A sub-postmaster victim of faulty IT software Horizon was described as a “bluffer” when he alerted senior Post Office officials about bugs in the system.

One of the Post Office’s heads of legal Rodric Williams dismissed the complainant and told the Post Office Horizon Inquiry on Thursday there was “bunker mentality” among staff in relation to the media’s coverage of the IT system.

The inquiry has been hearing evidence to examine who in government and the Post Office knew what and when about the accounting computer programme that falsely generated financial losses at Post Office branches across the UK and led to the conviction of hundreds of sub-postmasters who ran branches for theft and false accounting.

As a result of Horizon’s errors, many other sub-postmasters lost homes, moved out of their communities, and became unwell having wracked up significant debts and had their reputations ruined.

But in 2015 – while prosecutions were taking place with Horizon data and four years before the Post Office would apologise for the miscarriage of justice – the warnings of former sub-postmaster Tim McCormack were dismissed.

“Generally, my view is that this guy is a bluffer, who keeps expecting us to march to his tune,” Mr Williams – who is now tasked with dealing with Horizon complaints – said in an email to colleagues.

“I don’t think we should do that, but instead respond with a straight bat.”

The lawyer had been asked by former chief executive Paula Vennells to look into, what Mr McCormack said, was “clear and unquestionable evidence of an intermittent bug in Horizon that can and does cause thousands of pounds in losses to sub-postmasters”.

‘Bunker mentality’

Mr Williams agreed that there was an element of siege mentality at the Post Office against media questioning.

“I don’t know if I can speak for senior management but I do think certainly where I was sitting it did feel a bit bunker mentality, yes,” he told the inquiry.

When asked by barrister for the inquiry, Jason Beer: “It’s that siege mentality again, Mr Williams, isn’t it? Challenges to the Post Office are hostile and must be fended off rather than considered on their merits.”

Mr Williams responded, “I think that’s maybe overstating but there’s probably something in that, I think, that’s fair”.

‘Take it or leave it’

In response to a 2014 media request about Horizon satisfaction levels among sub-postmasters, Mr Williams effectively said they could use the system or leave.

“We don’t need to do research on Horizon – it’s the system we provide to our agents and require them to use. If agents don’t like it, they can choose not to provide services for us,” he said at the time.

“The vast majority of our agents and other users work with it just fine, and we’re not required to bespoke our point of sale accounting system to the whims of each individual agent.”

He was asked if it was his view, in 2014, that sub-postmasters could either use Horizon or leave he replied “yes”.

Mr Williams began at the organisation in 2012 as a litigation lawyer and still works there as the head of the remediation unit set up to address sub-postmaster complaints about Horizon.

His evidence continues on Friday.

Ms Vennells has said: “I continue to support and focus on co-operating with the inquiry and expect to be giving evidence in the coming months.

“I am truly sorry for the devastation caused to the sub-postmasters and their families, whose lives were torn apart by being wrongly accused and wrongly prosecuted as a result of the Horizon system.

“I now intend to continue to focus on assisting the inquiry and will not make any further public comment until it has concluded.”

Business

Ministers kick off search for new football referee

Published

23 hours ago

April 18, 2024

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Ministers kick off search for new football referee

Ministers are to kick off a search for the inaugural chair of the new football watchdog, even as it faces growing hints of opposition to its establishment from the Premier League.

Sky News has learnt that the Department for Culture, Media and Sport (DCMS) will launch the appointment process for the role at the Independent Football Regulator (IFR) as soon as this week.

The chair, who is expected to be paid a six-figure salary, will be responsible for overseeing a landmark period in the English game.

The regulator will have three primary objectives, including promoting clubs’ financial sustainability and the financial resilience of English football as a whole.

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It will also be charged with safeguarding the heritage of clubs, including their badges and traditional playing colours.

The IFR will have the power to prevent clubs from joining breakaway competitions, inspired by the putative efforts of English football’s big six clubs to join a European Super League.

Its establishment through primary legislation comes amid an ongoing impasse between the Premier League and English Football League about future financial distributions.

Gordon Brown, the former prime minister, is among the names who have been touted as potential chairs of the IFR.

Last week, Richard Masters, chief executive of the Premier League, warned in an article for The Times that more intrusive regulation could “undermine the Premier League’s global success, thereby wounding the goose that provides English football’s golden egg”.

A DCMS spokesman declined to comment on Thursday morning.