Kenvue IPO: Everything you need to know about the JNJ spin off

Johnson & Johnson consumer spin off

Healthcare giant Johnson & Johnson (JNJ) is expected to spin off its consumer arm, most known for its plasters, baby shampoo and Listerine brand of mouthwash. This move marks the largest restructuring in the company’s 135-year history.

The new company will be called Kenvue, according to the company’s SEC filing for its initial public offering (IPO).

The spinoff is expected to be completed by November 2023 – plans started in November 2021 and were given a timeframe of 18 to 24 months. The company estimates the cost will be between $500 million and $1 billion.

JNJ expects a tax-free spinoff, as they’ll be listing at least 80.1% of the business, which is the minimum required for a tax-free process.

The consumer division made J&J $15.1 billion in sales in 2021 but is still not as highly valued as other rival consumer units, and not as successful as the other J&J segments. Most of the demand for over-the-counter products were driven by the Tylenol, Neutrogena, and Aveeno products, which had market growth during the Covid-19 recovery.

Why is Johnson and Johnson going to split?

Johnson and Johnson’s split is aimed at refocusing the business and streamlining its operations. By removing the consumer arm, Johnson and Johnson will put more into developing medicines and medical devices, which brought in around $80 billion for the firm combined.

The medical arm of JNJ had disappointing sales after competitors’ Covid-19 vaccinations were more successful, but it still has a higher growth outlook. The spin off shouldn’t fundamentally change the operations of either business but will separate the lower-growth consumer unit from the higher-growth segments.

When the market becomes so competitive and high valuations stream in, we see a lot of spin offs occurring to increase shareholder value.

The company’s Chief Financial Officer Joseph Wolk has said previously that the consumer division “…was getting lost within Johnson & Johnson" but the structure also prevented the spotlight from being shone on the pharmaceutical and medical device businesses.

The plans by Johnson and Johnson are part of a much wider trend of large, diversified companies simplifying their structures by demerging various segments and subsidiaries. The strategy seems particularly popular among healthcare businesses, who are moving further into the higher-risk, higher-reward drug field.

What happens to JNJ stock when the company splits?

Once Johnson and Johnson splits, JNJ stock will only give traders and investors exposure to the medical device and pharmaceutical proceeds of the company. The new company, which will be listed as Kenvue, will trade separately.

The JNJ split is expected to make more shareholder returns, as each business won’t be diluted by the others. Investors will have a clearer image of each division and what makes it attractive.

Following the news, back in November 2021, shares of J&J traded 1.5% higher at $165.55. Over a year later, shares of JNJ are worth over $170 each despite the global economic slowdown. That’s largely because the firm is one of the largest defensive plays on the market, as there is always a demand for consumer health goods and medical products.

After the split, shares of JNJ might not be such a bold defensive play, as the company won’t be as diversified. The sheer scale of operations has somewhat protected JNJ stock from volatility and breaking that up could have a negative impact on the company’s stability.

What does the J&J split mean for shareholders?

If you currently own shares of Johnson & Johnson, when the company splits, you will own shares of both Johnson & Johnson – which will be the new pharmaceutical/medical device business – as well as shares of Kenvue, the new consumer health business.

This will likely come in the form of a special dividend, which is how most spin offs take place.

What do we know about the Kenvue IPO?

JNJ filed for Kenvue’s IPO on January 4, 2023. Kenvue will be listed on the New York Stock Exchange under the ticker ‘KVUE’.

There is no date confirmed for the listing yet, but the company has stated it will be as soon as practicable. JNJ has not yet said how many shares of Kenvue common stock will be sold in the offering, or the price range for the shares.

In its prospectus, Kenvue stated the various risks attached to the company – including the ongoing legal proceedings relating to the Johnson’s baby powder and other talc products.

The company has indicated it will be paying a quarterly cash dividend subject to approval.