Johnson & Johnson (NYSE: JNJ) announced today that its board has authorized a $5 billion repurchase of its common stock.
“The last few years have demonstrated the resilience of Johnson & Johnson. With continued confidence in our business and pipeline, the board of directors and management team believe that company shares are an attractive investment opportunity,” J&J CEO Joaquin Duato said in a news release. “With our strong cash flow and lowest level of net debt in five years, we have the ability to invest in innovation, grow our dividend, execute strategic acquisitions, and take this action to deliver shareholder returns and drive long-term growth.”
Criticism over its ‘Texas two-step’
The $5 billion stock repurchase comes as J&J faces scrutiny over a complex maneuver nicknamed the “Texas two-step.” Critics allege that J&J is seeking to shield itself from billions of dollars worth of lawsuit payouts involving people who claim J&J’s talc-based baby powder caused them to develop cancer.
A recent New Yorker expose detailed how J&J created a new LLC called LTL Management and then moved the talc liability over to LTL. The new LLC has since filed for Chapter 11 bankruptcy protection. Calling the bankruptcy a “shell game,” plaintiffs in the talc lawsuits have appealed — with the U.S. Court of Appeals for the Third Circuit holding expedited hearings this month. (J&J also plans to spin off its consumer business in 2023.)
University of Georgia law professor Elizabeth Chamblee Burch told the magazine that American corporations will be watching the Third Circuit’s decision closely: “We’re clearly seeing a strategy here to get the closure every company wants: ending all the state and federal lawsuits at once, reassuring their shareholders everything’s fine.”
3M is trying a similar strategy to shield itself from lawsuits over potential faulty earplugs sold to the military.
More about J&J’s share repurchase
J&J said the repurchase program announced today has no time limit, and the company can opt to suspend it for periods or even discontinue it. The company had roughly 2.6 billion common stock shares outstanding as of July 22. Company officials don’t expect it to incur debt to fund the share repurchase.
In addition, Johnson & Johnson reaffirmed its full-year 2022 adjusted operational sales growth and earnings per share guidance of 6.5–7.5% and $10.65–10.75 per share, respectively.
JNJ shares were up more than 1% to $164.32 apiece by midday trading today. MassDevice’s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was down more than 3%.