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Johnson & Johnson investors who choose to participate in the swap will see just 23.8% of their shares converted into Kenvue shares.
Justin Sullivan/Getty Images
Johnson & Johnson
‘s
$35 billion exchange offer to
Kinfu
Which ended last Friday was oversubscribed. The result is that participating J&J holders will only be able to convert a fraction of their shares into Kenvue shares.
J&J (ticker: JNJ) said Monday that the initial proportion estimate is 23.8%, which means that J&J holders who participated in the exchange would see only 23.8% of their shares exchanged for Kenvue (KVUE) shares. The remainder of the J&J shares provided by the J&J investors in the exchange offer will be returned to them.
exchange offer Announced in late July It was popular with J&J owners as about 803 million J&J shares were offered, or about 30% of the healthcare giant’s outstanding shares.
The exception to the proportionality is J&J holders who own less than 100 shares and have presented them all in the exchange offering. They will not bow down. The “single lot” exception to the descending proportion has attracted significant interest from retail investors since J&J offered approximately $107.50 in Kenvue stock for $100 in J&J stock as an inducement to the holders to make a barter.
Kenvue, the consumer health company that owns brands such as Tylenol, Listerine, and Band-Aid, announced J&J in May.
The proportion was a little lower than some on Wall Street had expected, though Barron I reported on Friday that estimates were in the 25% to 30% range. J&J holders could choose to offer all, some, or none of their holdings in the exchange offer. The final relative figure is scheduled to be announced on Wednesday.
A J&J holder who offered 1,000 shares in the exchange offer would potentially receive approximately 1,911 shares of Kenvue and retain 762 shares of J&J, Barron estimates. J&J holders who participated in the exchange offer will receive approximately 8.03 shares of Kenvue for each J&J share accepted for exchange.
Kenvue stock was higher in early trading Monday, rising 1.7% to $23.25, while J&J stock was down 2.1% at $168.82.
This is what many on Wall Street expected because auditors were buying J&J stock, shorting Kenvue stock to take advantage of the roughly 7% discount on Kenvue stock that J&J offered on the stock exchange. Now that the arbitrage business is over, Kenvue is ahead and J&J is under pressure. Kenvue stock was trading at about $25 before J&J announced plans to offer the exchange. With the ratio slightly lower than expected, there could be additional upward pressure on Kenvue stock.
Kenvue’s bull case is that it will soon retail to around $25, aided by its inclusion in
S&P 500 index
Which will happen on an unspecified date after the exchange offer. Some believe that an S&P Dow Jones Indices announcement about inclusion could happen as early as this week.
Citi analyst Filippo Falorni wrote in a note last week, “KVUE shares were pressured by event-driven funds during the tender-exchange period and we expect additional volatility over the average period (8/14-16) and in 8/21-22 as event-driven funds We expect KVUE to outperform in the following weeks, as shares return to trading on fundamentals.” Falorni has a $26 price target on Kenvue stock. He also cited the upcoming S&P 500 listing as an upside factor.
J&J said it would exchange approximately 191 million shares of its stock for 1.53 billion shares of Kenvue stock it held after Kenvue’s IPO in May. After the exchange, J&J will still own 9.5% of Kenvue’s shares, approximately 180 million shares.
Some Wall Street analysts expected J&J to trade its entire stake in Kenvue, about 1.7 billion shares, in the bid, but decided to keep a stake in the consumer health company. The remaining stake in Kenvue is expected to be distributed to J&J holders.
The stock exchange or split offer represents a giant share buyback funded by Kenvue shares, with J&J retiring about 7% of its shares.
Write to Andrew Bary at andrew.bary@barrons.com
