On this day in economic and financial history...
Embattled drugmaker Johnson & Johnson (NYS: JNJ) announced the first stages of a nationwide Tylenol recall on Oct. 5. 1982, after seven people died of poisoning from cyanide-laced headache pills. It would mark the beginning of an industry transition toward tamper-proof packaging and a more tamper-resistant pill form. The company's swift, decisive response earned it a great deal of praise in the media, blunting the severe damage its brand suffered through the scandal.
The country found itself fascinated with the "Tylenol murders." The FBI assigned nearly 30 agents to the case. A letter surfaced shortly after the first recall announcements, demanding $1 million in payment from Johnson & Johnson to stop the cyanide tampering. By this point, Johnson & Johnson had offered full exchanges for all outstanding supplies of Tylenol. Several people were arrested in connection with the cyanide tampering and extortion attempt by the time Johnson & Johnson revealed the recall's costs -- $100 million -- at the end of October. No murderer was ever found.
Johnson & Johnson has come under fire several times since for its response to later quality-control crises. The company battled more than 100 lawsuits in the 90s over deaths and liver damage from Tylenol overdoses. It recalled many over-the-counter drugs in 2009 and 2010 for multiple reasons, including potential bacterial contamination, unpleasant odors, and tiny shards of metal in the medicine. The company's more recent responses to problems wholly under its control have been unfavorably compared to the swift action taken in response to murderous tampering.
The company has seen its revenue flatline since its most recent recall episodes. Net income remains well below levels reached at the start of 2010.
Rebuilding the telecom trust
On Oct. 5, 1983, AT&T's (NYS: T) corporate predecessor took the first steps toward a post-Bell existence, incorporating as Southwestern Bell as a result of the landmark antitrust decision handed down in 1982. Two days later, Bell Atlantic also incorporated, forming the first link in the corporate chain leading to today's Verizon (NYS: VZ) .
Just prior to divestiture, monopolist AT&T boasted a market cap of nearly $60 billion. Today, after multiple consolidative moves from both parties, the two largest remnants of Ma Bell are worth a combined $350 billion. To put that in perspective, the Dow Jones Industrial Average (INDEX: ^DJI) reached 1,250 points the day Southwestern Bell incorporated. It's grown nearly 9% per year since. The Baby Bell spinoffs, on the other hand, have since grown their collective market caps over the original AT&T's size by just over 6% per year since divestiture.
Both telecoms have left the Dow in the dust since Verizon joined AT&T on the index in April 2004. They've each doubled, while the Dow's only gained 30%.
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The article A Dangerous Pill to Swallow originally appeared on Fool.com.Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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