Johnson & Johnson shares surged on Wednesday after the company proposed an $8.9 billion settlement to resolve thousands of claims alleging that its baby powder and other talc products caused cancer.
The company announced in a securities filing late Tuesday that over 60,000 claimants have committed to supporting the proposed resolution, which would require approval in bankruptcy court.
Following the announcement, J&J’s stock closed nearly 4.5% higher on Wednesday, boosting the company’s market value to over $430 billion.
In addition, J&J stated that its subsidiary, LTL Management, has refiled for Chapter 11 bankruptcy protection after facing legal challenges during its first attempt.
This subsidiary is managing tens of thousands of talc lawsuits to mitigate J&J’s litigation and settlement losses.
Some attorneys representing plaintiffs in the talc lawsuits hailed J&J’s proposal as a “significant victory” in a legal battle spanning more than a decade.
Wall Street analysts also responded positively to J&J’s move, despite the uncertainty surrounding the final outcome of the proposal.
JPMorgan analyst Chris Schott described the proposed settlement as a positive step for the company in a note on Thursday.
He mentioned that the ongoing talc litigation headlines have been a “larger overhang” for the company compared to the actual settlement value.
Schott noted that the proposed $8.9 billion settlement aligns with JPMorgan’s estimate of $8 billion to $10 billion.
Morgan Stanley analyst Terence Flynn echoed this sentiment in a Thursday note, expressing a similar positive outlook on J&J’s move.
However, Flynn indicated that he is awaiting clarification on how the 60,000 claimants relate to the 40,300 plaintiffs mentioned in J&J’s recent 10-K filing and the approximately 37,500 pending talc cases.
Bank of America analyst Geoff Meacham noted on Thursday that it remains uncertain whether the proposed settlement will receive approval in bankruptcy court. He highlighted J&J’s legal challenges regarding LTL Management’s bankruptcy protection filing.
In February 2022, a judge affirmed J&J’s ability to use the Chapter 11 strategy. However, the U.S. Court of Appeals for the 3rd Circuit overturned the ruling in January this year, stating that neither LTL nor J&J were in “financial distress” and thus did not have a legitimate need for bankruptcy protection.
Bernstein Analyst Lee Hambright acknowledged that there are “many issues” to resolve with J&J’s strategy to settle talc liability in bankruptcy court.
Nevertheless, he expressed optimism, stating that the firm believes “this is a creative approach that might actually work.”
