Yahoo Finance J&J Seeks Backing for $11 Billion Baby Powder Cancer Deal
(Bloomberg) -- Johnson & Johnson will ask thousands of people suing over its allegedly tainted baby powder to vote for a settlement that would resolve all litigation for $11 billion — $2.1 billion more than the company offered last year.
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In a news release Wednesday, J&J urged those who blame the talc-based powder for ovarian cancer to support a third bankruptcy filing aimed at corralling all current and future legal claims. Two earlier attempts to use Chapter 11 to foster such a deal failed as plaintiffs held out for a bigger payout.
This time around, the world’s largest maker of health-care products seeks a so-called “pre-packaged” bankruptcy under rules allowing companies to speed through Chapter 11 cases if they have enough creditor support. In bankruptcy court, plaintiffs are converted into unsecured creditors. Under Chapter 11 rules, J&J will need 75% of talc plaintiffs to back the move for a bankruptcy judge to approve it.
The new plan calls for the company to pay $6.48 billion over 25 years to resolve the ovarian cancer claims, though it’s unclear what portion will be set aside for current cases and how much would be placed in a trust for future claims. Separately, J&J has settled about 95% of cases alleging that asbestos-tainted powder caused another cancer called mesothelioma and has reached tentative agreements to resolve consumer-protection suits brought by US states, according to the release.
J&J’s shares rose 3.5% at 10:21 a.m. Prior to Wednesday’s move, the stock was down nearly 12% over the past 12 months.
J&J has worked with the lawyers for an “overwhelming majority of talc claimants to bring this litigation to a close, which we expect to do through this plan,” Erik Haas, the company’s worldwide vice president of litigation, said in the release.
Not all plaintiff’s lawyers were in agreement though.
“We believe any bankruptcy based on this solicitation and vote will be found fraudulent and filed in bad faith under the US bankruptcy code,” said Andy Birchfield, a lawyer for talc victims who is helping lead a consolidated case in federal court in New Jersey.
60,000 Suits
J&J announced in October it was weighing a third bankruptcy bid to settle the talc cases. The decade-long litigation, plus the prospect of potential future cancer suits, is hurting its stock, JPMorgan Chase & Co. analyst Chris Schott said. J&J has maintained that talc doesn’t cause cancer and that it has appropriately marketed its baby powder for more than 100 years.
J&J now faces almost 60,000 suits blaming talc used in baby power and similar products for different types of cancers. Many of those cases have been consolidated before a federal judge in New Jersey. Other cases are set for trial in state courts.
In April, a Chicago jury ordered J&J and its Kenvue spinoff to pay $45 million in damages to the family of a woman who blamed her cancer on baby powder use. It was the first verdict that entangled Kenvue, its former consumer products division, in the talc litigation after its initial public offering last year. J&J has agreed to indemnify Kenvue, which now sells a cornstarch-based version of baby powder, for any talc liabilities in North America.
In July, a judge rejected J&J’s second bankruptcy attempt, in which the company sought to resolve at least 40,000 suits for about $8.9 billion. The judge said J&J didn’t meet the test for financial distress imposed by a federal appeals court. The company has vowed to appeal that ruling to the US Supreme Court.
J&J has reached a tentative $700 million settlement with more than 40 states that targeted the company’s baby powder marketing under their consumer-protection laws. The company also has reached a tentative $75 million deal with the state of Mississippi on the eve of trial of one of the consumer cases.
The company also has made a push to settle mesothelioma cases but didn’t provide numbers for those settlements. J&J recorded a charge of $2.7 billion in the first quarter of this year over the recent talc-related settlements.
Third Attempt
If J&J succeeds with its third try, it would likely be an unprecedented use of Chapter 11 rules. That’s because J&J seeks to shed legal claims, not traditional debt owed to banks, bondholders and other creditors.
For a pre-packaged case to work, companies need overwhelming creditor support, which is far easier to get from a relatively small number of lenders. J&J will need the votes of tens of thousands of individuals who have sued the company and are eager to resolve their claims. They will have three months to cast their votes.
J&J has been preparing for the third bankruptcy attempt for months. It moved a unit to Texas to facilitate another so-called “Texas Two Step” Chapter 11 case. Texas law allows companies to assign liability from mass tort cases to a unit that can file for bankruptcy. The maneuver has drawn criticism from some legal experts for allowing solvent companies to use bankruptcy court to force settlements on claimants.
That kind of bankruptcy would allow J&J to put money into a trust to make payments to former talc users who develop cancer years down the road. The trust would decide how much claimants should be paid instead of allowing juries to decide damages. Many J&J claimants have vocally opposed relying on a trust.
The consolidated case is In Re Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Products Liability Litigation, 16-md-2738, US District Court, District of New Jersey (Trenton).
(Updates with share move in fifth paragraph)
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