With Johnson & Johnson’s consumer health spinoff in the rearview, J&J is taking its hands off the Kenvue steering wheel to focus on its own business—and offering investors an incentive to take ownership in the new company.
Leveraging a stock exchange offer—also known as a split-off—J&J aims to reduce its stake in Kenvue by roughly 80%, the company said Monday. Under the exchange offer, which is expected to be tax-free, J&J shareholders may exchange all, some or none of their common stock for Kenvue shares, J&J said.
The separation of the company—plus J&J’s massive split-off goal—are designed to “[sharpen]” the company’s focus on its main businesses, which chiefly fall under the pharmaceutical and medtech banners, J&J’s chief executive Joaquin Duato said in a statement.
Kenvue, for its part, also appears ready to go its own way. Speaking about the proposed exchange offer on CNBC's "Squawk on the Street" Thursday, Kenvue CEO Thibaut Mongon said the company is "pleased with the way that the IPO has been received by shareholders."
“We see a lot of alignment among our new investors in seeing the potential of Kenvue, but I can tell you that we are fully ready to leave as a fully independent company,” he added.
After more than a year of preparation, J&J formally spun off Kenvue in early May, listing the consumer group on the New York Stock Exchange for $22 per share. At the time, J&J said it was selling more than 172 million Kenvue shares to the public.
Now, J&J says it owns roughly 1.7 billion shares of Kenvue stock, representing around 90% of total outstanding shares of common stock in the standalone consumer health venture.
With the split off, J&J is offering to swap up to 1.54 billion shares of Kenvue common stock for outstanding shares of J&J at a 7% discount. Based on Monday's Kenvue share price of nearly $24, the split-off could reach a whopping $36 billion in value.
If the exchange offer isn’t fully subscribed—a likely potential outcome considering the scope of the deal J&J has laid out—J&J plans to sell remaining Kenvue shares and distribute the proceeds among J&J shareholders.
The split-off is voluntary for investors and is pegged to close on August 18, J&J noted in its release.
J&J telegraphed its split-off intentions last week during a presentation of its second-quarter earnings for 2023, when the company reported $25.5 billion in sales, beating out analyst expectations of $24.6 billion. That performance also prompted the company to boost its annual sales guidance by approximately $1 billion to a window of $98.8 billion to $99.8 billion.
Some $13.7 billion of J&J’s second-quarter revenue haul came from its pharma sector, which was up 6% year over year. J&J has set a goal to reach $57 billion in annual pharma sales by 2025.
Meanwhile, J&J isn't the only big pharma company offering its investors an exit. Last week, Novartis—on the heels of wrapping up a $15 billion share buyback program—unveiled another stock repurchase plan of the same size.
Similar to J&J’s exchange offer, Novartis’ new plan coincides with an expected spinoff of its generics unit Sandoz.
Speaking of the buyback plan, Novartis chief Vas Narasimhan said the move was “based on a long-term view that we have adequate capital to pursue our internal investments as well as our external M&A and [business development and licensing],” adding that the company believes it’s “prudent to buy back our shares over this period of time in returning capital to shareholders, as we fundamentally believe we’re undervalued versus our potential.”