J&J Seeks Backing for $11 Billion Baby Powder Cancer Deal

Johnson & Johnson will ask thousands of people suing over its allegedly tainted baby powder to vote in favor of a settlement that would allow the company to resolve all litigation for $11 billion — $2.1 billion more than it offered last year.

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.

J&J’s shares rose 2.1% in premarket trading on Wednesday. The stock is down nearly 12% in the past 12 months.

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 bankruptcy 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 has “worked with counsel representing the 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.

Andy Birchfield, a lawyer for talc victims, didn’t immediately respond to an email Wednesday seeking comment on J&J’s bid to win support for its $11 billion settlement.

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 limiting its stock price, analysts such as JPMorgan Chase & Co’s Chris Schott have said. J&J has steadfastly maintained that talc doesn’t cause cancer and that it has appropriately marketed its baby powder for more than 100 years.

According to a February securities filing, J&J now faces almost 60,000 suits blaming talc used in baby power and similar products for different types of cancers, many of which have been consolidated before a federal judge in New Jersey for pre-trial information exchanges. Other cases are set for trial in state courts.

The consolidated federal talc case is In Re Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Products Liability Litigation, 16-md-2738, U.S. District Court for the District of New Jersey (Trenton).

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 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.

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 case their votes.

To succeed, the company starts by negotiating a reorganization plan with creditors. That proposal is then laid out in a “disclosure statement” written to help creditors decide how to vote by describing how much they will be paid and other details.

A formal vote is taken by mail or email and if the company wins enough support — in J&J’s case it needs 75% — the case is filed in court and may win quicker-than-normal approval from a judge. Even with an overwhelming vote in favor, however, a pre-packaged case can be undone by a handful of holdouts.