We are amazed that Johnson & Johnson (JNJ) has seen the recent reversals of fortune that it has endured. We first followed JNJ back in the 1990s, and we remember the company as being able to consistently generate strong profitability, growth, and even a dividend to shareholders. While the company is still able to grow its dividend, we can certainly see that JNJ has lost its mojo. We’re sure that Warren Buffett of Berkshire Hathaway (BRK.B) can see that JNJ has been struggling since Berkshire first invested in it back in Q2 2006. This was around the same time that JNJ announced that it was buying Pfizer’s (PFE) Consumer Healthcare business for $16.6B in cash. According to Morningstar, JNJ has followed up that deal with $27.5B in additional acquisitions, most notably the $17.7B acquisition of Synthes.
After further review, we can see that Bill Weldon’s deal-crazed acquisition spree as CEO of JNJ did not add value to the organization. However, JNJ was able to post increased product recalls under his watch. No wonder Professor Sydney Finkelstein at Dartmouth named him one of the worst CEOs of 2011. We were glad that Weldon announced his retirement due to ill health in February (JNJ’s board was sick and tired of muddling in mediocrity), and his retirement eliminated a huge hole in the CEO’s office. JNJ’s Board tapped its Vice Chairman, Alex Gorsky as CEO, and Gorsky assumed the role on April 26th.
Despite Weldon’s terrible tenure of management mediocrity as Chairman and CEO of JNJ, he remains Chairman of JNJ’s board. We can see why Berkshire sold the majority of its JNJ holdings. We believe that Buffett has the patience of a saint with regards to JNJ, considering that Berkshire still holds 10M shares of the company despite the fact that its results have been very pedestrian since its 2006 acquisition of Pfizer Consumer Health.
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