Sources said Johnson & Johnson is exploring putting talcum powder liabilities into bankruptcy protection Reuters

Authors: Mike Spector, Jessica DiNapoli and Dan Levine

(Reuters)-According to seven people familiar with the matter, Johnson & Johnson (NYSE:) is exploring a plan to transfer debts from the widespread baby powder lawsuit to a newly established company and then The company will seek bankruptcy protection.

Some people familiar with the matter said that during the settlement discussion, an attorney for the health care group told the plaintiff’s lawyer that Johnson & Johnson may implement a bankruptcy plan, which may lead to a reduction in compensation for cases that have not been settled in advance. The plaintiff’s lawyer was unable to prevent Johnson & Johnson from taking such measures at first, but may later seek legal channels to challenge it.

Some people familiar with the matter said that Johnson & Johnson has not yet decided whether to implement a bankruptcy plan and may eventually abandon the idea. Reuters was unable to determine whether Johnson & Johnson had hired a restructuring lawyer to help the company explore bankruptcy plans.

Johnson & Johnson faces legal proceedings from tens of thousands of plaintiffs alleging that its baby powder and other talc products contain asbestos and cause cancer. Plaintiffs include women with ovarian cancer and other women who are struggling with mesothelioma.

“In addition to continuing to defend the safety of talcum powder and filing lawsuits against these cases in the infringement system, Johnson & Johnson Consumers has not yet decided to take any specific actions in this lawsuit, as the pending trial indicates,” Johnson & Johnson subsidiary of the company Of talc products said in a statement provided to Reuters. Johnson & Johnson declined to comment further.

If Johnson & Johnson continues, the unreconciled plaintiff may find himself in protracted bankruptcy proceedings with a possibly much smaller company. Future payments to the plaintiff will depend on how Johnson & Johnson decides to fund the entity that bears talc liabilities.

Johnson & Johnson is now considering the use of Texas’ “split and merge” law, which allows a company to be split into at least two entities. Some people familiar with the matter said that for Johnson & Johnson, this may create a new entity that accommodates Talc liabilities, and then file for bankruptcy to stop litigation.

This strategy is known among legal experts as a two-step bankruptcy in Texas, and it is a strategy adopted by other companies facing asbestos lawsuits in recent years.

Some people familiar with the matter said that Johnson & Johnson can also explore the use of another mechanism in addition to Texas law to achieve bankruptcy applications.

A 2018 Reuters survey https://www.reuters.com/investigates/special-report/johnsonandjohnson-cancer found that Johnson & Johnson has known for decades that asbestos, a known carcinogen, is lurking in its babies Powder and other cosmetic talc products. The company stopped selling baby powder in the U.S. and Canada in May 2020, partly because of what it called “misinformation” and “baseless allegations” about this talc product. Johnson & Johnson (J&J) insists that its talc products are safe and have passed thousands of tests to confirm that they are asbestos-free.

The blue chip company with a market value of approximately US$443 billion is facing legal proceedings from more than 30,000 plaintiffs alleging that its talc products are unsafe. In June, the U.S. Supreme Court refused to hear Johnson & Johnson’s appeal against the Missouri court ruling that led women to accuse the company’s talcum powder for causing their ovarian cancer to receive US$2 billion in compensation.

The plaintiff’s lawyers viewed the two-step bankruptcy strategy as a strategy to avoid potentially expensive settlements or judgments. The company sees it as a way to centralize a large number of litigation in one court to effectively negotiate the asbestos liability under the bankruptcy law. Companies that are not bankrupt can enter into financing agreements with entities undergoing court reorganization to pay future settlements.

In 2017, Brawny tissue maker Georgia-Pacific used Texas law to transfer asbestos liability to entities that later filed for bankruptcy in North Carolina.

Bankruptcy cases brought to resolve litigation, including asbestos-related cases, usually take several years, and creditors are almost never fully repaid. For example, OxyContin manufacturer Purdue Pharma LP is about to resolve thousands of opioid lawsuits after two years of bankruptcy negotiations. Its plan is worth more than 10 billion U.S. dollars to resolve trillions of dollars in claims.

According to a company press release, another company, DBMP LLC, filed for bankruptcy last year to resolve the asbestos liability, and stated that the case may take up to eight years.

Johnson & Johnson is also facing a lawsuit alleging that it caused the opioid epidemic in the United States and recently recalled certain spray sunscreen products after it was discovered that some of them contained low levels of benzene (another carcinogen).

The company agreed in June to pay $263 million to settle its opioid claim in New York. It denied wrongdoing related to its opioids.