Johnson & Johnson (JNJ) -) has been facing tens of thousands of lawsuits for several years now, alleging that the company's baby powder and other talc products sometimes contained asbestos and have caused a variety of cancers in the company's customers. The company recently proposed a nearly $9 billion settlement plan that would involve a bankruptcy filing and prevent new lawsuits from being filed against it.
On July 28 a judge struck down the proposal, opening up the floodgates for more lawsuits to continue to roll in. And Jim Cramer, host of CNBC's "Mad Money" subsequently decided that, though he loves the company, it's time to sell.
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"Normally when we sell a stock it's because something's changed at the company," Cramer, whose charitable trust just sold all of it's J&J holdings, said. "But we didn't sell J&J because of the fundamentals. We sold the stock because we are tired of being hostage to legal decisions that have little to do with the greatness of this company."
Before the litigation began, Cramer came to the conclusions that the company, at the very least, acted in good faith. After hearing about J&J's $8.9 billion settlement plan, Cramer became hopeful that the company would be able to lift itself out of this legal hole.
"That was a misjudgement by me," he said.
"The charitable trust was betting on litigation and that's not a game you want to play. In retrospect I was far too sanguine about J&J's ability to get a settlement that would protect their shareholders from unlimited lawsuits."
U.S. Bankruptcy Judge Michael Kaplan ruled that this bankruptcy filing must be dismissed for the simple reason that the talc lawsuits did not put the company in immediate "financial distress."
"J&J has spent two years trying to convince us that somehow a company worth a half-trillion dollars is bankrupt," Andy Birchfield, an attorney representing cancer victims, told Reuters. "It's time for the nonsense to stop and for J&J to accept responsibility."
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Though Cramer is not convinced of J&J's guilt in the matter, he is done waiting for things to look up.
"On Friday night, I had enough with J&J. I can't have a position that's precarious because of litigation. This business is hard enough without playing lawsuit roulette," Cramer said. "Hope should never be a part of the investing equation. Which is why we had the charitable trust sell its shares in this great American company."
Johnson & Johnson reported second-quarter earnings July 20 that beat Street expectation with $2.80 per share, compared to the expected $2.62. The company also reported $25.53 billion in revenue and raised its full-year guidance.
The company is valued at around $435 billion.
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