Johnson & Johnson shares rise after talc settlement offer

Johnson & Johnson shares on Wednesday climbed after the company proposed paying $8.9 billion to settle thousands of claims that its baby powder and other talc products caused cancer. 

More than 60,000 claimants have committed to support the proposed resolution, which would require approval in bankruptcy court, the company announced in a securities filing late Tuesday.

J&J’s stock rose more than 3% Wednesday morning. The company’s market value stands at around $426.24 billion.

The pharmaceutical giant also said its subsidiary LTL Management refiled for Chapter 11 bankruptcy protection after its first attempt faced legal challenges. The subsidiary is shouldering tens of thousands of talc lawsuits in a bid to reduce J&J’s losses from litigation and settlement. 

Some lawyers representing plaintiffs in the talc lawsuits called J&J’s proposal a “significant victory” in a legal fight that has lasted more than a decade. 

On Wall Street, some analysts were also encouraged by J&J’s move despite uncertainty around the final outcome of the proposal.

JPMorgan analyst Chris Schott on Thursday called the proposed settlement a positive for the company in a note. He said the bank has viewed ongoing talc headlines as the “larger overhang” for the company compared to an actual settlement value. 

The proposed $8.9 billion settlement is also in-line with JPMorgan’s $8 billion to $10 billion estimate, Schott noted. 

A Thursday note from Morgan Stanley analyst Terence Flynn shared a similar positive take on J&J’s move. But Flynn said he is waiting for clarity on how the 60,000 claimants tie back to the 40,300 plaintiffs cited in J&J’s recent 10-K filing and the roughly 37,500 actions pending on the company’s talc cases. 

It’s also unclear whether the proposed settlement will win approval in bankruptcy court, Bank of America analyst Geoff Meacham noted Thursday. Meacham pointed to J&J’s legal woes over LTL Management’s bankruptcy protection filing. 

A judge affirmed J&J’s ability to use the Chapter 11 strategy in February 2022. But the U.S. Court of Appeals for the 3rd Circuit overturned the ruling in January this year, saying neither LTL nor J&J had a legitimate need for bankruptcy protection because they were not in “financial distress.”

Bernstein Analyst Lee Hambright acknowledged that there are “many issues” to sort through with J&J settling talc liability in bankruptcy court. But he added that the firm believes “this is a creative approach that might actually work.”