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Johnson and Johnson Creates Talc Litigation Spinoff and Places It into Chapter 11

On October 14, pharmaceutical giant Johnson and Johnson sought Chapter 11 bankruptcy protection in the Western District of North Carolina for its newly created spinoff LTL Management.  LTL was created in Texas to hold J&J’s cosmetic talc liability in a strategy commonly referred to as a “divisive merger” or the “Texas two-step” because it allows economically viable companies like J&J to create a subsidiary in Texas and divide the company, transferring any liabilities to the new entity. In this instance, former parent Johnson and Johnson Consumer Inc. (JJCI) was divided into a new entity (JJCI) that received the former parent’s assets and LTL Management that received all the original parent’s talc liabilities.

LTL Created Using Divisive Merger Strategy

J&J has stated it will provide sufficient funds to LTL to cover amounts the company owes as well as create a $2 billion trust to pay claims against LTL. It will also dedicate the spinoff royalty revenue, estimated to be more than $350 million, to LTL. In the past several months, since J&J announced its plan to place its talc liabilities under bankruptcy protection, a number of motions have been filed by talc plaintiffs who have alleged that the move by J&J will allow the company to avoid responsibility for the over 38,000 claims currently filed against it alleging injuries,

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