July 24 (Reuters) - Johnson & Johnson (JNJ.N) said on Monday it had launched an exchange offer under which its stockholders can opt for shares of Kenvue , its newly listed consumer health unit.
J&J, which currently owns an 89.6% stake in Kenvue, said it intends to split off at least 80.1% of the consumer health company's shares as part of the offering.
The offering will help J&J move a step closer in its plan to spin off the unit and focus on its larger medical devices and pharmaceuticals businesses.
@gknows I don't get why they didn't just pay a dividend of Kenvue shares to current JNJ shareholders instead of going for this route.
The fact that they're forcing me to analyze these two stocks closer to decide which one I want to keep is making me wonder if I'd be better off just selling out of JNJ completely and investing my money into something else, which is surely not what JNJ wants.
@xrrbx I wonder what % of their shareholders are retail? Not sure if it would make a dent for a few frustrated shareholders to sell off small amounts of stock. I’m sure they are running this by major shareholders and institutional owners.
@gknows We should ask if KVUE was such a good business, why is JNJ dumping it? Why is KVUE shares down >10% since its IPO in May. The talc litigation is going to be an overhang on both stocks until there's a resolution.
I am not participating in the exchange and will just hold my existing JNJ shares. As a LT investor, I won't trade a higher growth, higher margin business for a modest growth, lower margin business. The 7% discount incentive is not enough of a motivator for me. Also, according to JNJ's separation exchange website, if the exchange is undersubscribed, they will distribute the remaining shares of Kenvue as a tax-free distribution to existing JNJ shareholders. No rush to do anything.
@fosterjake companies divest all the time when the core businesses diverge enough. Kvue could be worth taking a flyer on as it becomes an acquisition target by the likes of P&G and other house hold staples.
@gknows Help me understand this: I own (shares in) a company. My company spins part of itself off into another company. Why do I now have to choose which company I want to own how much of? If I stick with JNJ (as I intend to) and don’t “take advantage” of this offering, how am I not worse off than before JNJ spun anything off (i.e. back when JNJ still included what subsequently got spun off)?
I mean, last year I owned JNJ which included within it what became KVUE. They spun that off, … did I get anything then? I assumed my remaining JNJ got ”rewarded” for creating a valuable spinoff by retaining ownership? But now I’m getting to choose whether I want JNJ or KVUE (or ratios thereof) whereas I used to hold the entire bag?
@raiza You assume that JNJ get's rewarded for creating a potentially valuable newco. but JNJ in this case is in the same position as you in some sense in that it is just splitting it's bag. They (sorta like you) decide how much they want to cut off for KVUE or keep together but for reasons they have decided the ratio or value between the two for themselves and are now putting it up to you to decide where you as an investor fall on how much you value the two pieces that they have split into.
If you want to retain some ratio of both KVUE and JNJ that reflects "the entire bag" that you had before they split then you can (at least in theory) crunch whatever numbers need to be crunched to make you feel comfortable about the split. If you only want one company or the other you can do that too... but you haven't lost on your investment in that case, just more directly clarified what element of the company was worth the risk of investing in it for you.
@gknows Not a lot of earnings growth, saturated market, JNJ is lucky to get rid of it. They raise capital and shed a slow growth part of their company. The premium not worth it.
@gknows I'm doing the swap for some of my shares to diversify. At a 7% discount, why not? Upon the exchange, KVUE will be part of the S&P 500 meaning large institutional shareholders will be forced to pick it up.
My only concern is that the float will increase 8x meaning potential downward pricing pressure as there would be a ton of supply. Hopefully this would be offset by becoming part of the S&P 500.
Anyhow I could offload immediately after the exchange and pickup JNJ shares again being up overall.
It will work as long as you get the ratio right. So you would short $107.53 worth of KVUE for every $100 worth of JNJ you buy. Make sure you tender the JNJ and make sure its less than 100 shares of JNJ or it won't work. When you get your KVUE, it should approximately cover the short. You can trade out of whatever is left.
Nothing is risk free and I won't say anything about the potential risk but your friend is thinking about the mechanics of the trade the right way.
