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What are the common concerns on splitting up of GE and Johnson & Johnson Company?

Johnson & Johnson

Key questions:

  • What is the reason for the split up? How will it affect the shares?
  • Below mentioned are the recent announcements, mainly important to the investors.

Splitting into different entities

General Electric and Johnson & Johnson, two significant corporations, announced this month that they will be split into various businesses.

On Wednesday, GE announced that it would split into three separate businesses: energy, aviation, and health care. Johnson & Johnson, which is currently trading at $163, will be split into two companies: one for consumer goods and another for pharmaceuticals.

Here’s what you might be wondering if you’re one of the numerous Americans who have retirement savings or other money invested in one or both of the firms.

Why is the split-up happening?

Morningstar’s director of healthcare equity strategy, Damien Conover, said the news of Johnson & Johnson‘s split-up surprised him. Band-Aids, Tylenol, and baby powder are among the company’s well-known products, which are headquartered in New Brunswick, New Jersey.

Conover stated that they don’t see any weighty catalyst for the said change.

After facing lawsuits over its role in the opioid epidemic, one theory is that the business is attempting to decrease the danger of litigation against its consumer company. Charges that the talc in its baby powder caused cancer in some customers are also taken into account.

Meanwhile, GE, headquartered in Boston and famed for producing engines and turbines among other things, has struggled in recent decades. Experts believe it’s likely attempting to regain momentum by focusing more on each of its main but quite diverse businesses.

When are things going to change?

Johnson & Johnson plans to complete its separation within 24 months. GE expects its healthcare spin-off to launch in early 2023, and its energy company to launch in 2024.

Will my stocks get affected?

Existing investors should be able to purchase shares in the new companies. According to Kelly Shue, a finance professor at Yale School of Management, these spinoffs are similar to what happens when a firm splits its stock.

Individuals’ initial equity will become a share in GE aviation, according to Shue, but they will also receive these special stock dividends. Furthermore, Shue stated that shareholders will continue to own all three branches.

Will I then, owe taxes?

Both companies claim that the transition will be tax-free. Of course, selling any of the shares could result in capital gain taxes, as is always the case.

Do I take any actions?

According to Shue, once these companies are divided up, institutional investors may undertake a lot of trading. That’s because they’ll be able to pick and choose which sections of GE they want to purchase, and they might be more bullish on energy than aviation, for example.

Shue doesn’t think that there is a compelling rationale for average investors to trade on this.

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