Johnson & Johnson initiates shares swap with consumer health spin-off Kenvue

25 Jul 2023 --- Johnson & Johnson announced its intention to split-off at least 80.1% of the shares of Kenvue through an exchange offer. Kenvue, formerly Johnson & Johnson’s Consumer Health business, completed its initial public offering in May 2023.

“The separation of Kenvue further sharpens Johnson & Johnson’s focus on transformational innovation specifically in Pharmaceutical and MedTech,” said Joaquin Duato, chairman and CEO at Johnson & Johnson.

“We believe now is the right time to distribute our Kenvue shares, and we are confident that a split-off is the appropriate path forward to bring value to our shareholders.”

Kenvue’s portfolio comprises the skin care, baby bath and oral care categories. Johnson & Johnson currently owns 1,716,160,000 shares of Kenvue common stock, representing approximately 89.6% of the total outstanding shares of Kenvue common stock.

On a reported basis, Kenvue recently posted net sales in the second quarter of 2023 at US$4 billion, a 5.4% increase versus the prior year period..Through the planned exchange offer, Johnson & Johnson shareholders can exchange all or some of their shares in the multinational corporation’s common stock for shares of Kenvue common stock at a 7% discount.

Johnson & Johnson is offering to exchange up to 1,533,830,450 shares of Kenvue common stock for outstanding shares of Johnson & Johnson common stock in the exchange offer. 

The exchange offer is expected to be tax-free for US Federal income tax purposes.

Exchange offer conditions
The exchange offer is subject to an upper limit of 8.0549 shares of Kenvue common stock per share of Johnson & Johnson common stock tendered and accepted in the exchange offer.

If the upper limit is not in effect, tendering shareholders are expected to receive approximately US$107.53 of Kenvue common stock for every US$100 of Johnson & Johnson common stock tendered.

The price at which Johnson & Johnson will exchange its common stock for Kenvue’s stock will be determined based on the average price of both companies’ stocks over three days (August 14, 15 and 16, 2023) on the New York Stock Exchange (NYSE).

To calculate the average price, the companies will refer to the “daily volume-weighted average price,” which means they will consider the trading volume and the price of each stock to come up with a fair average value.

Final exchange ratio to be determined
The final exchange ratio will be announced by press release by 9:00 a.m., New York City time, on the trading day immediately preceding the expiration date of the Exchange Offer, which – if not extended or terminated – would be August 18, 2023.

The completion of the exchange offer is subject to certain conditions. These include a minimum of 460,149,135 shares of Kenvue common stock being distributed in exchange for shares of Johnson & Johnson common stock validly tendered in the exchange offer.

The conditions also outline the receipt of an opinion of counsel that the exchange offer will qualify for tax-free treatment to Johnson & Johnson and its participating stockholders.

So, if you’re a shareholder of Johnson & Johnson during that record date, and if the exchange offer didn't get enough takers, you might receive some shares of Kenvue as a dividend. This way, Johnson & Johnson ensures that the shares they offered to exchange don’t go to waste and still benefit their existing shareholders.

The exchange offer is voluntary for Johnson & Johnson shareholders. No action is necessary for Johnson & Johnson shareholders who choose not to participate.

Goldman Sachs & Co. and J.P. Morgan Securities will serve as dealer managers for the exchange offer.

Kenvue highlights “strong” 2023 results
On July 20, Kenvue announced its financial results for the fiscal second quarter ended July 2, 2023.

“Our second quarter results mark a strong debut for Kenvue, reflecting the strength of our portfolio of iconic brands, the agility of our operating model and the strong execution of our 22,000 team members while navigating a dynamic environment,” remarks Thibaut Mongon, CEO and director atKenvue.

On a reported basis, net sales in the second quarter of 2023 were US$4 billion, a 5.4% increase vs the prior year period. Foreign currency fluctuations negatively impacted net sales by approximately 2.3%. 

Organic growth increased 7.7%. The increases in net sales and organic growth were primarily driven by value realization (defined as price including mix), increased demand across the company’s Pain Care and Cough, Cold and Flu product categories.

Organic growth consisted of 9.4% value realization and 1.7% volume decline. Excluding the impact of intentional strategic portfolio rationalization initiatives and the decision to suspend the sale of personal care products in Russia, volume was about flat.

By Benjamin Ferrer