In mid December, the shares of Johnson & Johnson or J&J fell 10% because of a report in Reuters the senior management of the company knew that cancer causing asbestos lurked in the Baby Powder. In an article by Saumya Joseph of Reuters, the 10% decline in the price of the shares was worth a drop of $40 billion from the market capitalization of the company.
There are two aspects to the story, the company said, baby powder does not contain asbestos and the company would continue to defend itself on the safety of its product. As a rational person, you would be inclined to believe the company and JPMorgan analysts noted even if there was law suits won the amount would be less than $40 billion.
The second aspects is although J&J is a health and consumer health company, the image of the company stems from the J&J Baby Powder. If mothers around the US decided to buy another brand, the goodwill would take many years to recover. If you can not trust the baby powder, do you trust the shampoo? band-aids and drugs? The story is there was asbestos in talc, the company dominate the talc industry for years, but of the $76.5 billion the company generated, talc was 0.5% of its revenue.
Linking to dividend paying companies, all dividend companies have goodwill around their companies that for years they have done the right thing and expect to continue to. If the goodwill goes, then the company is a great trouble. For J&J the company is likely oversold and every once in a while it was to deal with asbestos and talc, but it is very small piece of their business. J&J promotes itself as a caring company, what would a caring company do and should do? if you do not see it, look for alternatives.
There are more questions than answers, till the next time – to raising questions.