Johnson & Johnson said this week it is considering an initial public offering for its consumer unit. Investors may not be so keen. J&J could carry out an IPO, Chief Financial Officer Joseph Wolk told Bloomberg Markets Tuesday, or the company could do a separation that leaves the unit entirely in the hands of its current shareholders and avoids the taxes involved in a public offering.
The latter choice looks easier given the current conditions. The tax-free route would provide J&J with more flexibility to execute the separation by avoiding worries about timing rocky markets, said Jim Osman, founder of The Edge Consulting Group. “With somber market conditions, an IPO might lead to an overestimate of valuation by management and under-appreciation by investors,” Osman said. “Investor losses could be avoided in a spinoff.”