J&J holders will receive 8 Kenvue shares for every J&J share in the exchange offer
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J&J took consumer health company Kenvue public in May.
Mark Ralston/AFP via Getty Images
Johnson & Johnson
Just over eight shares will be issued
Kinfu
Each of its shares in what is likely to be a stock offering is oversubscribed totaling about $40 billion.
The pricing period for the exchange offer runs from Monday to Wednesday. Johnson & Johnson (Stock ticker: JNJ) he said late Wednesday The exchange ratio is set at approximately 8.03 shares of Kenvue (KVUE) for each of its shares.
With shares of Johnson and Johnson ending Wednesday at $172.39, down 0.3% over the session, holders who choose to conduct the exchange will receive approximately $184 in Kenvue shares for each J&J share, based on Wednesday’s closing price for Kenvue, Barron estimates. Kenvue fell 1.4% to $22.93 on Wednesday.
The premium is now about 7%, which is in line with J&J’s plan to offer approximately $107.50 in Kenvue stock for every $100 in J&J stock. J&J offered the premium to give holders an incentive to barter.
Kenvue is the consumer health company that owns brands like Listerine, Band-Aid, and Tylenol. It was released to the public by J&J in May.
J&J’s campaign deadline for an election is Friday, but many brokerages want retail investors to submit their instructions sooner. Merrill and Fidelity have set deadlines for Thursday, though Fidelity will handle instructions issued through mid-afternoon on Friday on a best efforts basis. Schwab’s retail customers needed to have an election by Monday.
J&J holders may redeem all or some of their shares or not redeem them for Kenvue. If they don’t hold an election, they will keep their J&J stock.
The exchange offer is likely to be oversubscribed. The result of this would be that J&J holders were prorated, meaning they would only be able to exchange a fraction of their shares for Kenvue. The current view on Wall Street is that the ratio will be around 30%, which means that the holder of 100 J&J shares would get 30 of them converted into approximately 241 shares of Kenvue and keep 70 shares of J&J stock. The proportion is likely to be announced early next week.
The stock offering appears attractive to J&J owners because arbitrage activity has boosted J&J stock since the offering was revealed on July 24 while sending Kenvue stock lower. Arbs bought J&J shares and shorted Kenvue to get the spread. J&J holders can basically get low-priced Kenvue shares at a discount.
RBC Capital Markets analyst Nick Moody wrote positively in Kenvue on Thursday.
In short, we believe KVUE stock is undervalued
its growth prospects. It is not often of high quality multinational
It trades at 13 times EBITDA. We think 15.5x EBITDA is more favorable and
We believe KVUE shares will move to this valuation as management progresses
On his guidance,” he wrote. Modi has an Outperform rating and a price target of $29 per share. Ebitda is EBITDA.
Kenvue shares are down about 5% since late July and are trading near a 52-week low, while J&J shares are closer to a 52-week high. An exchange ratio of 8.03 is just under the maximum allowed ratio of 8.05 under bid. Barron He wrote positively on Kenvue at the time of the IPO.
Kenvue now trades at about 18 times estimated earnings for 2023 and yields 3.5%, while J&J is bringing in 16 times estimated earnings for 2023 and yields 2.8%.
J&J said it would withdraw about 191 million of its shares in the exchange offering, assuming it issues 1.5 billion Kenvue shares on the exchange. Wall Street assumes J&J will issue 1.7 billion Kenvue shares, the entire stake being about 90%, due to potentially strong demand for the exchange offering. This will result in the retirement of more than 210 million shares of J&J, Barron Estimates, or about 8% of J&J stock.
Owners of 25% or more of J&J shares may participate in the stock exchange.
Participation in the exchange offering could increase if Kenvue rebounds on Thursday and Friday because that would raise the value of Kenvue shares that would be received by participating J&J holders.
The stock offering represented a giant stock buyback funded by Kenvue stock. J&J chose the more complex exchange offering, which bewilders many of its huge base of retail holders, rather than a direct single offering in which J&J holders would automatically receive Kenvue stock.
Kenvue stock could rise once the exchange offering is completed as arbitrage activity ends and the company adds to
Standard & Poor’s 500
Index, which may come as early as next week.
Citi analyst Fillppo Falorni wrote in a note Tuesday that he expects Kenvue could rally once the exchange offering expires.
“KVUE shares were pressured by event-driven funds during the tender-exchange period and we anticipate additional volatility during the middle period (8/14-16) and on 8/21-22 as event-driven funds adjust their positions post-close,” he wrote. “We expect KVUE to outperform in the coming weeks, as shares return to trading on a fundamentals basis. In addition, we expect a tailwind from index fund demand for KVUE shares following S&P Global’s announcement last week that the company will be added to the S&P500 after the completion of its term. exchange offer.
He has a price target of $26 per share.
Write to Andrew Bary at andrew.bary@barrons.com
