3 ms·

As I understand it that link describes a plan to use the bankruptcy of a subsidiary (NOT the main company) as a way to resolve the court cases in one go. The su

by WJW 3y ago

As I understand it that link describes a plan to use the bankruptcy of a subsidiary (NOT the main company) as a way to resolve the court cases in one go. The subsidiary is funded with enough money to pay the expected settlements (with the parent company guaranteeing any shortfalls) and bankruptcy is used here as a legal tool rather than a "we are out of money" point. Matt Levine had a great section about this in his newsletter but I cannot find an un-paywalled link to that atm. It's the one from Jan 31 if you are subscribed. According to their latest annual report (https://www.investor.jnj.com/asm/2022-annual-report https://www.investor.jnj.com/asm/2022-annual-report, page 45), they had some 14.4 billion in "cash and cash equivalents" at the start of this year. Their net debt position was 16.1 billion on Jan 1 2023 (page 46 of the same report), up from 2.1 billion the year before due to an acquisition so there is likely quite some room to take on additional debt. Total net earnings for 2022 were just below 18 billion. Paying a 9 billion USD settlement will be painful for sure, but even double that would be just a single years' worth of profit. J&J is extremely likely to survive this problem IMO.

jacquesm 3y ago
That subsidiary is just a legal trick. And this is exactly what J&J want you to believe. https://www.wbur.org/onpoint/2022/10/20/the-texas-two-step-a-new-bankruptcy-strategy-to-avoid-corporate-liability https://www.wbur.org/onpoint/2022/10/20/the-texas-two-step-a...
- WJW 3y ago
  > And this is exactly what J&J want you to believe. Do you mean that they lied in their annual report about their profits and/or their current cash on hand? Or that the total legal costs will be much higher than the 9 billion settlement agreement? Because I still don't see how a 9 billion settlement would bankrupt J&J, even if the subsidiary were to be reabsorbed into J&J tomorrow. They already set aside ~7 billion in Q1 2023 for this and have way deeper reserves available.
  - jacquesm 3y ago
    The settlement is limited to those cases that have been brought and they're trying to plug that hole with legal tricks. But so far the judge isn't buying it which means the parent company will be liable and if it is found to be liable after all you can count on many thousands more lawsuits. It will also remove the cap on settlements. You can expect J&J to take a massive hit on account of that, possibly more than the market will bear. Keep in mind during all of this that in order to fail as a commercial entity all that needs to happen is that you are momentarily out of cash. The vultures will swoop in right away to dismember the corpse looking for bargains.

by WJW 3y ago

jacquesm 3y ago

That subsidiary is just a legal trick. And this is exactly what J&J want you to believe. https://www.wbur.org/onpoint/2022/10/20/the-texas-two-step-a-new-bankruptcy-strategy-to-avoid-corporate-liability https://www.wbur.org/onpoint/2022/10/20/the-texas-two-step-a...

WJW 3y ago
> And this is exactly what J&J want you to believe. Do you mean that they lied in their annual report about their profits and/or their current cash on hand? Or that the total legal costs will be much higher than the 9 billion settlement agreement? Because I still don't see how a 9 billion settlement would bankrupt J&J, even if the subsidiary were to be reabsorbed into J&J tomorrow. They already set aside ~7 billion in Q1 2023 for this and have way deeper reserves available.
- jacquesm 3y ago
  The settlement is limited to those cases that have been brought and they're trying to plug that hole with legal tricks. But so far the judge isn't buying it which means the parent company will be liable and if it is found to be liable after all you can count on many thousands more lawsuits. It will also remove the cap on settlements. You can expect J&J to take a massive hit on account of that, possibly more than the market will bear. Keep in mind during all of this that in order to fail as a commercial entity all that needs to happen is that you are momentarily out of cash. The vultures will swoop in right away to dismember the corpse looking for bargains.