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Executive Summary

J&J is unveiling its first major consolidation and restructuring move under new Chairman Ralph Larsen, announcing the combination of three existing businesses under a leaner management hierarchy. The new entity will be called Johnson & Johnson Consumer Products, Inc. and will merge J&J Baby Products, J&J Dental Care and J&J Health Care. The new organization is scheduled to begin operations on Dec. 4. It will be headed by James Utaski, 49, currently company group chairman of the J&J consumer brands, and a 15-year veteran of J&J. Utaski will carry the title of president of the consolidated company. The top J&J corporate officer responsible for the consumer business is Executive Committee member Pierre Dupasquier. Current J&J Baby Products Company President William Egan will assume an exec VP title in charge of marketing in the new organization. Carl Ehmann, MD, currently VP R&D for the baby products company, will fill a similar role for Consumer Products, Inc. J&J Health Care VP-sales James Guidone will have the same title in the new company. In J&J's committee style of management, Egan, Ehmann and seven other VPs will make up the Management Board for the new consumer products company. Egan, 44, was pictured in J&J's most recent annual report and credited with working out an arrangement with Ortho Pharmaceutical to develop a consumer product line, Purpose, to piggyback off the success of the unapproved use of Ortho's Retin-A for skin aging. J&J Chairman Larsen explains the restructuring as an effort to reduce duplication of promotion and reach a single consumer base. As J&J's separate consumer businesses have expanded, Larsen said, the company has experienced "considerable duplication and overlapping services, including management functions." The consolidation of the consumer businesses is the first significant internal move under Larsen. It was announced, almost to the day, one year after the public announcement on Oct. 24, 1988 that Larsen would succeed James Burke at the top of the J&J corporate pyramid. Before assuming the top spot at the company, Larsen had extensive experience in consumer products, including a brief stint outside J&J as head of Becton Dickinson's consumer business. His last position prior to acceding to the chairmanship was as J&J consumer sector chairman. Larsen officially assumed the chairmanship at the company's April annual meeting. Addressing the management downsizing directly, Larsen acknowledged "these were difficult decisions." He noted that "as with all changes of this nature, a number of people will be affected." There will be some early retirements, voluntary separations, and relocations, Larsen pointed out. He added that "some will be separated." Larsen also announced an imminent consolidation on the professional products (hospital products/medical device) side of the business -- combining Johnson & Johnson Patient Care and Surgikos into a new entity, Johnson & Johnson Medical Inc. The drug businesses have already undergone a few steps toward consolidation with the folding in of research and development activites for McNeil and Ortho under the new R. W. Johnson Research Institute. McNeil and Ortho are now operating essentially as two separate sales forces similar to the divided sales forces of other major U.S. pharmaceutical firms. Janssen Pharmaceutica remains autonomous in both R&D and marketing functions, presumable in deference to the star mystique of its founder Paul Janssen, and to the division's good current operating results. J&J is highlighting the introduction of Janssen's non-sedating antihistamine Hismanal as a contributor to 19.4% worldwide sales volume growth in the third quarter. The new consumer products business will be headquartered at the current site of the baby products operations in Skillman, N.J. The company lists six sites for manufacturing for the new business. Three current dental product sites are not included in the new list: East Windsor, N.J.; Grand Rapids, Michigan; and San Diego, California. Exec committee member Dupasquier indicated that the consolidation responds to "changes occurring in the retail environment and moves being made by many of our competitors." The merging of the three companies will provide an opportunity for "greater market leverage," Dupasquier maintained. Anticipating interpretations that the consolidation moves might indicate more centralization within J&J, Larsen declared that "in no way" should the changes "be construed as a departure from our commitment to a decentralized approach to managing the business." Larsen pointed out that "as recently as 10 years ago there were 92 affiliate companies within J&J." The current company census within J&J is over 170, and the company is venturing out into partnerships with industry peers (such as Merck and Abbott) as well as start-up funding. The three top VP marketing posts, reporting to Egan, go to W. M. Carpenter (oral care), P. S. Michaels (toiletries), and R. E. Whittaker (wound care). The three marketing VPs will also be members of the management board. The description of one of the marketing VPs as heading toiletries, instead of baby products, is noteworthy and may indicate J&J's continuing push to age its product line with the increasing average American age. In addition to its traditional infant products marketed by the Baby Products Company, J&J has been bringing on toiletries for that business in recent years. Recent additions have included the Affinity shampoo line and the Sundown and Piz Buin sunscreens. The changes are taking place against the backdrop of a sluggish performance by the consumer products side of the business. In its third quarter interim report, disclosed a day after the announcement of the changes, J&J noted the negative impact on domestic consumer sales from "softness in the U.S. retail health and beauty aids category" and "intense competition" in the sanitary products business. J&J's Personal Products business (sanitary products) is not included in the consolidation.

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