KVUE Split-off: A Response to JNJ's Cancer-Related Products?

It is plausible to consider that Johnson & Johnson's decision to spin off Kenvue might be linked to an effort to mitigate potential legal liabilities stemming from its talc-based products, which have been implicated in cases of cancer in the US and Canada. This strategic maneuver could potentially offer a layer of legal protection. Shareholders are expected to transition from holding Johnson & Johnson shares to Kenvue shares in the upcoming week. A similar approach was attempted by MMM, although it did not yield successful results, causing a downward trajectory in its stock performance over the past two years.

From my perspective, the true rationale behind the division appears to be related to the numerous instances of individuals developing cancer due to Johnson & Johnson's talc-based products. A recent legal ruling mandated Johnson & Johnson to pay $18.8 million to a California resident who claimed to have contracted cancer from using its baby powder. This decision represents a setback for the company as it seeks resolution for thousands of comparable cases related to its talc-based products within a US bankruptcy court.

Johnson & Johnson recently disclosed detailed information regarding the much-anticipated division of its consumer healthcare venture, Kenvue. This move involves a separation of at least 80.1% of Kenvue shares, facilitated through an exchange offer presented to investors. Within this arrangement, shareholders have the flexibility to trade all, a portion, or none of their Johnson & Johnson shares for Kenvue stock.

The company is extending the choice to its investors, allowing them to opt for an exchange of shares for Kenvue stock. To incentivize this exchange, a 7% discount is being offered on the shares. However, there is an upper threshold of 8.0549 Kenvue shares for each Johnson & Johnson share. If this ceiling is not applicable, shareholders will receive approximately $107.53 worth of Kenvue shares for every $100 worth of Johnson & Johnson stock they intend to exchange. The execution of this exchange offer is anticipated to conclude by mid-August. Notably, this exchange program is voluntary and carries tax-free advantages.

Kenvue has outlined plans to distribute a portion of its available funds to shareholders through dividend payments. The company has recently initiated a quarterly dividend of $0.20 per share (equivalent to $0.80 annually), with the first payout scheduled for early September. This dividend framework translates to a dividend yield of 3.3% based on the prevailing stock price of approximately $24 per share. This yield marginally exceeds Johnson & Johnson's existing dividend yield of 2.8%.

It is likely that a significant portion of individuals holding Johnson & Johnson stock will opt to exchange their shares for Kenvue.

Based on this assessment, I anticipate that Kenvue's stock could potentially reach $30 in the near future.

Looking forward to read your opinion about it!