J&J Could Use 'Divisive Merger' Law of Texas to Offload Baby Powder Liabilities - Report

Johnson & Johnson is trying to hammer out a bankruptcy route to keep at bay some of the liabilities arising out of the Baby Powder litigation, according to reports. The plan is to create a new business entity, which would in turn seek bankruptcy protection.

Reuters reported the news exclusively, citing as many as seven people familiar with the matter.

Lower Payouts

The report says that an attorney for Johnson & Johnson said the company could opt for this route in cases where the plaintiffs 'do not settle beforehand'. This would result in lower payouts, the attorney is reported to have told the plaintiffs' lawyers.

Johnson & Johnson baby powder
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Though J&J declined to comment, a subsidiary company issued a statement to the news agency. "Johnson & Johnson Consumer Inc. has not decided on any particular course of action in this litigation other than to continue to defend the safety of talc and litigate these cases in the tort system, as the pending trials demonstrate," the subsidiary dealing with J&J's talc products said.

The top US conglomerate is facing complaints from thousands of people who say its baby powder and other talc products caused cancer to them as they contained asbestos. Asbestos is a group of minerals generally found in talc that causes mesothelioma, i.e. cancer in the lining of internal organs caused by exposure to asbestos.

In May last year, Johnson & Johnson said on it was stopping the sale of its talc-based baby powder in the US and Canada. The decision came after a barrage of lawsuits against the company, claiming that the product is carcinogenic.

'Divisive Merger' Law

If the reported bankruptcy plan materializes, J&J would be taking advantage of the "divisive merger" law in Texas. The law provides for a company to be split into at least two entities. Taking this route, J&J, can create a new entity dealing in talc products, and this company could in turn file for bankruptcy protection.

However, it's highly unclear if J&J would take this route. The report adds that the plaintiffs will not be be able to immediately stop such a plan from materializing, though they can take legal action subsequently.

Johnson & Johnson
Johnson & Johnson has responded to criticisms about Sulli and Goo Hara's Lolita-themed photo Reuters

According to a Reuters investigation, J&J had known about the existence of asbestos in its baby powder and other talc products.

Now the company, whose market capitalization exceeds $400 billion, is facing lawsuits from more than 30,000 plaintiffs.

Last month, J&J suffered a setback after the US Supreme Court refused to hear its plea to overturn a $2.12 billion compensation award for women who claimed their ovarian cancer was caused by asbestos elements in J&J's talc products.

The women and their families said in the lawsuit that they developed ovarian cancer following thr use of baby powder and talc products of J&J for decades. They said company knew its talc contained asbestos but did not warn consumers about it.

J&J's Defense

J&J says the case is not exactly about the safety of the contents of its products but the process. The company said its products never contained asbestos and insisted that the contents do not cause cancer. It had said that the judgment was a "fundamentally unfair process".

The BBC had reported that a US Food and Drug Administration (FDA) study of a variety of talc samples, including J&J, from 2009 to 2010 did not find any asbestos in any of them.

However, the prosecutors said the FDA and Johnson & Johnson were using flawed testing methods.