J&J’s Kenvue Exchange Offer Is Substantially Oversubscribed. What Happens Now.

The trade supply announced in late July was standard with J&J holders with about 803 million J&J shares tendered, or about 30% of the healthcare large’s excellent inventory.

The exception to the proration is J&J holders who held lower than 100 shares and submitted all of them within the trade supply. They won’t be topic to proration. The “odd-lot” exception to the proration attracted appreciable curiosity from retail traders since J&J was providing roughly $107.50 in Kenvue inventory for $100 in J&J shares as an inducement for its holders to make the swap.

Kenvue, a client well being enterprise that holds such manufacturers as Tylenol, Listerine, and Band-Help, was taken public by J&J in May.

The proration was barely decrease than some on Wall Road anticipated, with Barron’s reporting Friday that estimates had been within the 25% to 30% vary. J&J holders might have elected to submit all, some or none of their holdings within the trade supply. The ultimate proration determine is because of be introduced on Wednesday.

A J&J holder who submitted 1,000 shares within the trade supply probably will get about 1,911 shares of Kenvue and retain 762 shares of J&J, Barron’s estimates. J&J holders who participated within the trade supply will latest roughly 8.03 shares of Kenvue for every J&J share accepted for trade.

Kenvue inventory is larger in early buying and selling Monday, rising 1.7% to $23.25, whereas J&J inventory is off 2.1% to $168.82. 

That is what many on Wall Road anticipated as a result of arbitragers had been shopping for J&J inventory, and promoting brief Kenvue inventory to make the most of the roughly 7% low cost on Kenvue inventory that J&J supplied within the trade. Now that the arbitrage exercise is over, Kenvue is rallying and J&J is underneath stress. Kenvue inventory had traded at round $25 earlier than J&J introduced plans for the trade supply. With the proration barely decrease than anticipated, there might be further upward stress on Kenvue inventory.

The bull case on Kenvue is that it’ll quickly commerce to round $25, helped by its inclusion within the

S&P 500 index
which is able to occurred at an undetermined date after the trade supply. Some suppose an announcement by S&P Dow Jones Indices on the inclusion might occur as early as this week.

Citi analyst Filippo Falorni wrote in a be aware final week, “KVUE shares have been underneath stress from event-driven funds throughout the trade tender interval and we count on further volatility throughout the averaging interval (8/14-16), and on 8/21-22 as event-driven funds readjust their positions post-close. We anticipate KVUE will outperform within the following weeks, as shares return to buying and selling based mostly on fundamentals.” Falorni has a $26 worth goal on Kenvue inventory. He additionally cited the approaching S&P 500 inclusion as a bullish issue.

J&J stated it might trade practically 191 million shares of its inventory for 1.53 billion Kenvue shares that it retained after taking Kenvue public in Might. After the trade, J&J will nonetheless maintain a 9.5% stake in Kenvue, roughly 180 million shares. 

Some Wall Road analysts anticipated J&J to trade its total Kenvue stake, some 1.7 billion shares, within the supply, nevertheless it determined to retain an curiosity within the consumer-health firm.

The trade supply or split-off quantities to an enormous inventory buyback funded by Kenvue inventory, with J&J retiring about 7% of its shares.

Corrections & Amplifications:

J&J hasn’t stated what it plans to do with its remaining 9.5% stake in Kenvue. An earlier model of this text incorrectly stated J&J plans to distribute it to shareholders.

Write to Andrew Bary at [email protected]