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Johnson & Johnson Stock Gains On Plan to Split Into Two Separate Companies

Johnson & Johnson said Friday it will split its $15 billion consumer health unit from its pharmaceutical and medical devices division within the next two years.

Johnson & Johnson  (JNJ) - Get Johnson & Johnson Report shares moved higher Friday after the group unveiled plans to split the healthcare and pharmaceutical giant into two separate companies.

Johnson & Johnson will spin-off its consumer health division -- which includes brands such as Band-Aid, Baby Powder and Tylenol and is likely to generate $15 billion in revenues this year -- from its pharmaceutical and medical devices division. The split could come within the next 18 to 24 months, Johnson & Johnson said, in a deal it expects to be a tax-free separation for federal income tax purposes. 

Johnson & Johnson's dividend will remain "at least at the same level" following the separation, the company said, with the pharmaceutical and medical devices division set to be led by incoming CEO Joaquin Duato.

The move follows news this week that General Electric  (GE) - Get General Electric Company Report will split into three separate companies -- focusing on energy, healthcare and aviation -- and comes hot on the heels of a decision by Japan's Toshiba  (TOSYY)  to form three independent companies in what CEO Satoshi Tsunakawa said was the "best option" after pressure from activist investors.

"Throughout our storied history, Johnson & Johnson has demonstrated that we can deliver results that benefit all our stakeholders, and we must continually be evolving our business to provide value today, tomorrow and in the decades ahead," said outgoing CEO Alex Gorsky. "Following a comprehensive review, the Board and management team believe that the planned separation of the Consumer Health business is the best way to accelerate our efforts to serve patients, consumers, and healthcare professionals, create opportunities for our talented global team, drive profitable growth, and – most importantly – improve healthcare outcomes for people around the world."

"For the new Johnson & Johnson, this planned separation underscores our focus on delivering industry-leading biopharmaceutical and medical device innovation and technology with the goal of bringing new solutions to market for patients and healthcare systems, while creating sustainable value for shareholders," he added. "We believe that the New Consumer Health Company would be a global leader across attractive and growing consumer health categories, and a streamlined and targeted corporate structure would provide it with the agility and flexibility to grow its iconic portfolio of brands and innovate new products."

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Johnson & Johnson shares were marked 1.5% higher in early trading Friday to change hands at $165.52 each.

Consumer health sales rose 5.3% to $3.7 billion over the third quarter, Johnson & Johnson reported last month, while pharmaceutical sales jumped 13.8% to just under $13 billion. Medical device sales were up 8% from last year to $6.6 billion.

The gains helped power a stronger-than-expected bottom line of $2.60 per share, which was up 18.2% from the same period last year and well ahead of the Street consensus forecast.

Vaccine sales for the third quarter, Johnson & Johnson said, came in at just over $500 million, a more than 200% increase from the prior period. 

Looking into the final months of the year, Johnson & Johnson said it sees adjusted earnings in the region of $9.65 to $9.70 per share, up from a prior forecast of between $9.50 and $9.60, with sales -- including vaccines -- in the region of $94.1 billion to $94.6 billion, up from $92.5 billion to $93.3 billion.

In late August, Johnson & Johnson said Gorsky would step down later this year, and tabbed industry veteran Joaquin Duato as his replacement.

Gorksy, who has lead the group since 2012, will transition to the role of executive chairman on January 3, citing "family health reasons" for his surprise decision. Duato, 59, will take over the group on that date, as well, capping a three-decade career with the group that has included stints leading the consumer products division and overseeing its technology and supply-chain operations.