Why Toshiba and Johnson & Johnson are the latest corporate behemoths doing the splits
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.
One division will be focused on Toshiba’s electronics devices
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.
General Electric announced a break-up earlier this week
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.
Johnson & Johnson denies allegations about its talcum powder Pic: AP
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.
J&J boss Alex Gorsky said the demerger was the “best path forward to ensure sustainable growth”
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.
J&J is going down a path previously trodden by GSK
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.
A household energy supplier has failed, weeks after it attracted attention from regulators.
Rebel Energy, which has around 80,000 domestic customers and 10,000 others, had been the subject of a provisional order last month related to compliance with rules around renewable energy obligations.
The company’s website said it was “ceasing to trade” but gave no reason.
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Industry watchdog Ofgem said on Tuesday that those affected by Rebel’s demise did not need to take any action and would be “protected”.
Customers, Ofgem said, would soon be appointed a new provider under its supplier of last resort (SoLR) mechanism.
This was deployed widely in 2021 when dozens of energy suppliers collapsed while failing to get to grips with a spike in wholesale energy costs.
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The last supplier to go under was in July 2022.
Ofgem said new rules governing supplier business practices since then had bolstered resilience.
These include minimum capital requirements and the ringfencing of customer credit balances.
The exit from the market by Bedford-based Rebel was announced on the same day that the energy price cap rose again to take account of soaring wholesale costs between December and January.
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Tim Jarvis, director general for markets at Ofgem, said: “Rebel Energy customers do not need to worry, and I want to reassure them that they will not see any disruption to their energy supply, and any credit they may have on their accounts remains protected under Ofgem’s rules.
“We are working quickly to appoint new suppliers for all impacted customers. We’d advise customers not to try to switch supplier in the meantime, and a new supplier will be in touch in the coming weeks with further information.
“We have worked hard to improve the financial resilience of suppliers in recent years, implementing a series of rules to make sure they can weather unexpected shocks. But like any competitive market, some companies will still fail from time to time, and our priority is making sure consumers are protected if that happens.”
Harrods is urging lawyers acting for the largest group of survivors of abuse perpetrated by its former owner to reconsider plans to swallow a significant chunk of claimants’ compensation payouts in fees.
Sky News has learnt that KP Law, which is acting for hundreds of potential clients under the banner Justice for Harrods, is proposing to take up to 25% of compensation awards in exchange for handling their cases.
In many cases, that is likely to mean survivors foregoing sums worth of tens of thousands of pounds to KP Law, which says it is working for hundreds of people who suffered abuse committed by Mohamed al Fayed.
Mohamed al Fayed. File pic: PA
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Under a redress scheme outlined by the London-based department store on Monday, which confirmed earlier reports by Sky News, claimants will be eligible for general damages awards of up to £200,000, depending upon whether they agree to a psychiatric assessment arranged by Harrods.
In addition, other payments could take the maximum award to an individual under the scheme to £385,000.
A document published online names several law firms which have agreed to represent Mr al Fayed’s victims without absorbing any of their compensation payments.
KP Law is not among those firms.
Theoretically, if Justice for Harrods members are awarded compensation in excess of the sums proposed by the company, KP Law could stand to earn many millions of pounds from its share of the payouts.
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‘Many more’ likely abused by Fayed
A Harrods spokesperson told Sky News on Tuesday: “The purpose of the Harrods Redress Scheme is to offer financial and psychological support to those who choose to enter the scheme, rather than as a route to criminal justice.
“With a survivor-first approach, it has been designed by personal injury experts with the input of several legal firms currently representing survivors.
“Although Harrods tabled the scheme, control of the claim is in the hands of the survivors who can determine at any point to continue, challenge, opt out or seek alternative routes such as mediation or litigation.
“Our hope is that everyone receives 100% of the compensation awarded to them but we understand there is one exception among these law firms currently representing survivors who is proposing to take up to 25% of survivors’ compensation.
“We hope they will reconsider given we have already committed to paying reasonable legal costs.”
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Further claims against al Fayed
Responding to the publication of the scheme on Monday, KP Law criticised it as inadequate, saying it “does not go far enough to deliver the justice and accountability demanded by our clients”.
“This is not solely a question of compensation but about justice and exposing the systematic abuse and the many people who helped to operate it for the benefit of Mohamed al Fayed and others.”
Seeking to rebut the questions raised by Harrods about its fee structure, KP Law told Sky News: “KP Law is committed to supporting our clients through the litigation process to obtain justice first and foremost as well as recovering the maximum possible damages for them.
“This will cover all potential outcomes for the case.
“Despite the Harrods scheme seeking to narrow the potential issues, we believe that there are numerous potential defendants in a number of jurisdictions that are liable for what our clients went through, and we are committed to securing justice for our client group.
“KP Law is confident that it will recover more for its clients than what could be achieved through the redress scheme established by Harrods, which in our view is inadequate and does not go far enough to compensate victims of Mr al Fayed.”
The verbal battle between Harrods and KP Law underlines the fact that the battle for compensation and wider justice for survivors of Mr al Fayed remains far from complete.
The billionaire, who died in 2023, is thought to have sexually abused hundreds of women during a 25-year reign of terror at Harrods.
He also owned Fulham Football Club and Paris’s Ritz Hotel.
Harrods is now owned by a Qatari sovereign wealth fund controlled by the Gulf state’s ruling family.
The redress scheme commissioned by the department store is being coordinated by MPL Legal, an Essex-based law firm.
Last October, lawyers acting for victims of Mr al Fayed said they had received more than 420 enquiries about potential claims, although it is unclear how many more have come forward in the six months since.
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