Kenvue Inc., the consumer-focused spinoff of Johnson & Johnson that owns brands such as Band-Aid and Tylenol, fell on Thursday after J&J said it’s preparing to launch an exchange offer for its majority stake.
(Bloomberg) — Kenvue Inc., the consumer-focused spinoff of Johnson & Johnson that owns brands such as Band-Aid and Tylenol, fell on Thursday after J&J said it’s preparing to launch an exchange offer for its majority stake.
Shares of Kenvue sank as much as 10% in New York trading, the most since the company started trading publicly in May, before paring much of that loss. J&J Chief Financial Officer Joe Wolk said during a call with analysts that the exchange offer will depend on the state of the market and could begin in “the coming days.”
J&J still holds nearly 90% of Kenvue’s shares, and the exchange offer would lead to dilution, potentially reducing the value of existing investors’ shares and their proportional ownership of the company.
The J&J comments are “stoking uncertainty” in the market, Bloomberg Intelligence analyst Diana Gomes said, given that the company acknowledged that “it may have to sit with a large stake after the share exchange.”
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J&J has said all along that it intended to separate from Kenvue in 2023, Kenvue Chief Executive Officer Thibaut Mongon said on Bloomberg Television. “That was always part of the plan,” he said. “We are fully ready to operate as an independent company.”
Kenvue, whose offering broke a long lull in large US listings, reported second-quarter earnings earlier on Thursday. The company has said it’s trying to improve its margins by making its supply chain more efficient.
In a Bloomberg News interview prior to J&J’s announcement, Mongon said that a slow economic recovery in China is hurting sales.
“We saw some softness in Asia this quarter,” Mongon said, with China’s slow recovery contributing to volume declines in the essential health category, which includes oral care, baby and wound care.
“We were never in the camp of those who thought that China would recover overnight,” Mongon said. “We know this market very well, and we thought that the recovery would be gradual, and that’s what we see happening.”
Mongon said that he’s optimistic about the medium- and long-term potential for Kenvue’s China business.
There’s concern that shoppers globally are pulling back amid high levels of inflation and slowing economic activity, and Kenvue’s results are another sign of weakness in Asia. The company’s earnings per share and revenue topped estimates, but sales volume declined 1.7% for the quarter ended July 2, showing that consumers are buying fewer units.
“More needs to be done in terms of investment in advertising,” Gomes said. She added the company needs to be “catching up on distribution, as service levels with retailer clients are still not where they should be.”
–With assistance from Bailey Lipschultz.
(Updates with shares in second paragraph, CEO’s comments in fifth paragraph and throughout.)
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