Johnson & Johnson spin off: what does it mean for JNJ shares?

Johnson & Johnson’s consumer healthcare unit, now called Kenvue, was valued at $41 billion ahead of its IPO. Shares list on Thursday 4 May. Find out everything we know about the JNJ spin off.

Johnson & Johnson consumer spin off

Kenvue has now been priced at $22 per share, which puts it at the top of the company's marketed range of $20.00 to $23.00. It's estimated the company will raise around $2.8 billion, valuing the new consumer arm of Johnson & Johnson (JNJ) at about $41 billion - and making it the largest IPO in the US since 2021.

Shares start trading on Thursday 4th May on the New York Stock Exchange under the ticker KVUE. After the completion of the IPO, Johnson & Johnson will own 1,716,160,000 shares of Kenvue’s common stock, representing 91.9% of the total outstanding shares of Kenvue’s common stock.

The consumer arm of JNJ is commonly known for its plasters, baby shampoo and Listerine brand of mouthwash. This move marks the largest restructuring in the company’s 135-year history.

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

Learn more about how demergers and spin offs work

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.

Other recent and upcoming spin offs include:

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.

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