A high-profile talc trial in California recently ruled against Johnson & Johnson (JNJ), creating uncertainty regarding whether the thousands of other plaintiffs currently suing the company will accept J&J’s proposed $8.9 billion settlement or proceed with their own lawsuits. Jim Cramer believes that the company was overly optimistic about winning the case, stating that the plaintiff system is biased against them. However, he still believes in J&J as a great American company and thinks they need to be more realistic in their expectations.
Despite Jim’s optimism, J&J was ordered to pay $18.8 million to a 24-year-old plaintiff who developed mesothelioma from exposure to J&J talc products. It is unclear how this ruling will impact J&J’s separate case in federal court, where the company seeks bankruptcy for its subsidiary, LTL Management, which handles talc litigation lawsuits. Usually, bankruptcy proceedings put a pause on new cases, but the Valadez claim was allowed due to the plaintiff’s failing health.
Moshe Maimon, a partner at Levy Konigsberg LLP who has won significant judgments in talc suits against J&J, considers this verdict to be very significant and believes it advances the cause of resolving talc liability more than bankruptcy filings. J&J claims over 60,000 claimants support their settlement offer, but around 40,000 others object. To secure victory in the LTL case, it requires support from a 75% supermajority of claimants.
Johnson & Johnson plans to appeal the recent verdict, emphasizing that their talc products never contained asbestos or caused cancer. The next step in this lengthy legal process will likely come in early August from U.S. Chief Bankruptcy Judge Michael Kaplan. If Kaplan dismisses the bankruptcy proposal, J&J will have to return to the tort system where they intend to aggressively fight the claims.
While J&J reported strong second-quarter financial results, the talc issue continues to affect the company’s stock. However, Wall Street analysts have given price target increases to J&J, indicating some confidence in the company’s future. Erik Haas, worldwide vice president of litigation at J&J, stated that they are confident in their ability to prevail in the majority of claims in the tort system.
J&J’s subsidiary, LTL Management, filed for Chapter 11 bankruptcy to protect against talc litigation and proposed an $8.9 billion settlement to end ongoing lawsuits. However, the recent verdict in California may influence other plaintiffs to opt out of the settlement, creating further uncertainty. It is crucial to gain clarity on the proposed talc compensation plan before making any investment decisions regarding J&J.
Although the bankruptcy situation causes hesitation in increasing our J&J position, Jim believes it is only a problem for the stock, not the company itself. Apart from the talc issue, J&J’s business fundamentals remain strong with an AAA balance sheet and a promising product pipeline. The separation of J&J’s consumer health division into Kenvue is expected to add more value for shareholders. The split-off should be completed before the end of the year.
(Jim Cramer’s Charitable Trust is long JNJ. See here for a full list of the stocks.)
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A closely watched talc trial in California recently ruled against Johnson & Johnson (JNJ), adding uncertainty around whether thousands of other plaintiffs suing the company will accept J&J’s proposed $8.9 billion settlement offer or pursue their own legal avenues.
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