Johnson & Johnson JNJ demerger

[TheMotorcycleBoy]

Hi people,

So JNJ spun off its customer health section into another publicly traded entity called Kenvue in early May. As a holder of JNJ in my ISA/SIPPs I expected to see some KVUE shares in my accounts. Alas that has not happened as yet.

According to this article (if you don't hold a Barrons subscription, then clearing any barrons.com cookies will permit you a free read) this is the current expectation:

Johnson & Johnson will own 90.9% of Kenvue after the completion of the IPO. The company will eventually distribute those shares to its own shareholders.

On visiting a JNJ webpage trying to discover more, the picture wasn't much clearer:

Johnson & Johnson has not decided nor has it stated publicly the next steps or form of separation.
Next steps may include the following:

* Johnson & Johnson may pursue a “spin-off”, whereby Johnson & Johnson would distribute pro rata to its shareholders Kenvue shares owned by Johnson & Johnson. A “spin-off” would require no action by current Johnson & Johnson shareholders.

* Johnson & Johnson may pursue a “split-off”, whereby Johnson & Johnson shareholders could choose to exchange all, some or none of their Johnson &
Johnson shares for Kenvue shares owned by Johnson & Johnson (subject to the
terms of the exchange offer).

* Any combination of the above.

It's mildly frustrating, since according to blurb online KVUE stock is doing pretty well post IPO, so I'd feel happier if my accounts were already benefiting from the action. I wondered if anyone on here knows about about how the eventual distribution will materially effect holdings which folks possess in their UK accounts.

Matt

[simoan]

Hi Matt,

I agree the lack of clarity is frustrating. I hold JNJ in a USD account and have heard nothing at all from my broker. you’d think they’d at least acknowledge a corporate action had taken place. However, until the company decide what they are doing with their 90% Kenvue holding it’s unlikely we’ll be able to do anything. The whole thing is a bit of a mess and I don’t understand why they only floated 10% of the shares initially - who is going to want to buy in the market with such a large overhang other than an existing JNJ shareholder? It creates a false market in some ways.

All the best, Si

[Dod101]

Hi Matt,

I agree the lack of clarity is frustrating. I hold JNJ in a USD account and have heard nothing at all from my broker. you’d think they’d at least acknowledge a corporate action had taken place. However, until the company decide what they are doing with their 90% Kenvue holding it’s unlikely we’ll be able to do anything. The whole thing is a bit of a mess and I don’t understand why they only floated 10% of the shares initially - who is going to want to buy in the market with such a large overhang other than an existing JNJ shareholder? It creates a false market in some ways.

All the best, Si

Presumably you can blame the US regulatory system. For all its alleged faults, that would surely not have been allowed to happen in the UK.

Dod

[simoan]

Hi Matt,

I agree the lack of clarity is frustrating. I hold JNJ in a USD account and have heard nothing at all from my broker. you’d think they’d at least acknowledge a corporate action had taken place. However, until the company decide what they are doing with their 90% Kenvue holding it’s unlikely we’ll be able to do anything. The whole thing is a bit of a mess and I don’t understand why they only floated 10% of the shares initially - who is going to want to buy in the market with such a large overhang other than an existing JNJ shareholder? It creates a false market in some ways.

All the best, Si

Presumably you can blame the US regulatory system. For all its alleged faults, that would surely not have been allowed to happen in the UK.

Dod

I'm not sure your presumption is correct. AFAIK there is no minimum free float requirement for IPOs on the LSE. Indeed, I can think of at least two recent IPO's where the free float was only 25-35% with the majority of voting shares held by insiders (The Hut Group and Alphawave). That's no different really, other than we are yet to know what the majority holder (J&J) intentions are for their holding. But that is the case wherever you own shares as a minority holder. At least it's a known unknown and the options are limited. It's not something that really concerns me other than the complete lack of communication from my broker, but then they're rubbish at that kind of thing.

[Dod101]

There is I believe a minimum free float of 25% for an IPO on the LSE. That is why there was such controversy about The Hut. It apparently met the 'free float' requirement but the founder was felt to have retained too great an influence.

Dod

[vandefrosty]

So JNJ spun off its customer health section into another publicly traded entity called Kenvue in early May. As a holder of JNJ in my ISA/SIPPs I expected to see some KVUE shares in my accounts. Alas that has not happened as yet.

We have a small position in JnJ, and we too have no distributed shares. JnJ floated 1/11th of its 100% holding of Kenvue in an IPO. So it's raised cash for itself, rather than distributed the subsidiary via a spin-off.

The float does seem kind of small, but I imagine the intent is to establish a market value that informs JnJ's subsequent course of action. Maybe Unilever will be interested in making an unsolicited bid...!!!

Greg

[TheMotorcycleBoy]

Hi Matt,

I agree the lack of clarity is frustrating. I hold JNJ in a USD account and have heard nothing at all from my broker. you’d think they’d at least acknowledge a corporate action had taken place. However, until the company decide what they are doing with their 90% Kenvue holding it’s unlikely we’ll be able to do anything. The whole thing is a bit of a mess and I don’t understand why they only floated 10% of the shares initially - who is going to want to buy in the market with such a large overhang other than an existing JNJ shareholder? It creates a false market in some ways.

All the best, Si

Yes, it would nice to get more clarity. I was thinking of topping up my holding recently but procrastinated wondering which way things will move when "it finally happens".

Matt

[simoan]

Kenvue exchange offer announced today: https://www.reuters.com/business/health ... %20billion.

All the best, Si

[TheMotorcycleBoy]

Yeah, I saw that as well. Something to do being a "split-off" not a "spin-off" IIRC.

But I'm still not seeing any advice/notification in the Corporate Actions part of our ISAs. Perhaps this is to come.

Matt

[simoan]

Yeah, I saw that as well. Something to do being a "split-off" not a "spin-off" IIRC.

But I'm still not seeing any advice/notification in the Corporate Actions part of our ISAs. Perhaps this is to come.

Matt

Tbh I’m not interested in the exchange offer anyway, even with the 7% discount. This represents quite an overhang on Kenvue shares so just glad I wasn’t forced to take them. I will just maintain my Johnson & Johnson holding.

[TheMotorcycleBoy]

Yeah, I saw that as well. Something to do being a "split-off" not a "spin-off" IIRC.

But I'm still not seeing any advice/notification in the Corporate Actions part of our ISAs. Perhaps this is to come.

Matt

Tbh I’m not interested in the exchange offer anyway, even with the 7% discount. This represents quite an overhang on Kenvue shares so just glad I wasn’t forced to take them. I will just maintain my Johnson & Johnson holding.

Yeah, I have still not decided.

What do you mean by quite an overhang on Kenvue shares, to be more precise?

Matt

[simoan]

What do you mean by quite an overhang on Kenvue shares, to be more precise?

Matt

Since the current free float of Kenvue is just over 10%, and the exchange offer is for up to a further 80.1% of the float at a discount of 7%, if you were an institution that held J&J why on earth would you buy Kenvue shares in the market right now? Maybe as some kind of arbitrage given that the exchange price has not been set, but otherwise, why bother? This is what I meant by "overhang". The additional free float should be good for the shares long term given that liquidity will be so much better but for the time being there seems little point in trading the shares directly, especially given that no-one knows what the take up of the offer will be, or even whether it will go ahead given there is a minimum take up threshold. From the press release:

The completion of the exchange offer is subject to certain conditions, including: at least 460,149,135 shares of Kenvue common stock being distributed in exchange for shares of Johnson & Johnson common stock validly tendered in the exchange offer; and the receipt of an opinion of counsel that the exchange offer will qualify for tax-free treatment to Johnson & Johnson and its participating stockholders.

Johnson & Johnson currently owns 1,716,160,000 shares of Kenvue common stock, representing approximately 89.6% of the total outstanding shares of Kenvue common stock. Johnson & Johnson is offering to exchange up to 1,533,830,450 shares of Kenvue common stock for outstanding shares of Johnson & Johnson common stock in the exchange offer. If the exchange offer is consummated but not fully subscribed, Johnson & Johnson intends to make a tax-free distribution to its shareholders of the shares of Kenvue common stock that were offered but not exchanged in the exchange offer effected as a dividend on a pro rata basis to holders of Johnson & Johnson common stock as of the record date. The record date for the clean-up spin-off, if any, is expected to be seven business days following the expiration date of the exchange offer.

The exchange offer is voluntary for Johnson & Johnson shareholders. No action is necessary for Johnson & Johnson shareholders who choose not to participate.

I'm very much in the latter camp and the worst that can happen is that I end up with a special dividend if the exchange offer is not fully subscribed.

All the best, Si

[TheMotorcycleBoy]

I think I get the gist of it. A massive proportion of the total KVUE stock is currently held by JNJ.

And when you said current free float of Kenvue is just over 10% I guess that you got that figure from subtracting the approximately 89.6% of the total outstanding shares of Kenvue common stock mentioning in JNJ's quote.

So what I think you suggesting is that you're unsure about the way of the price will go if such a large additional quantity of the KVUE stock starts being traded. Sounds reasonable if that's the case.

And like you, I'd probably be happier with a special div.

Matt

[simoan]

So what I think you suggesting is that you're unsure about the way of the price will go if such a large additional quantity of the KVUE stock starts being traded. Sounds reasonable if that's the case.

And like you, I'd probably be happier with a special div.

Matt

Yes. Why would you buy in the market now in the face of such uncertainty? FWIW I don’t really want a special dividend for tax reasons, and would much prefer a simple reduction in the number of JNJ shares such that the exchange offer works more like a share buyback for anyone not wishing to exchange.

[TheMotorcycleBoy]

So who bears the brunt of the Baby powder legal costs after the split?

You'd think it would be KVUE, as it's a home healthcare product not a biotech. I certainly hope so.

[simoan]

So who bears the brunt of the Baby powder legal costs after the split?

You'd think it would be KVUE, as it's a home healthcare product not a biotech. I certainly hope so.

Bad news if you’re holding JNJ on that basis then. As part of the demerger JNJ agreed to retain all talc related legal liabilities.

https://finance.yahoo.com/news/j-js-con ... z1yPtj0TFj

[TheMotorcycleBoy]

Lol. I guessed as much, what with still seeing recent news articles with the coincidence of the expressions "JNJ", "legal" and "powder".

SP and earnings seem OK these days, content to hold and add to periodically.

[TheMotorcycleBoy]

I'm now seeing this in my corporate actions.

You Have The Following Options:
1 Tender your holding of 37 JOHNSON JOHNSON COM USD1.00 shares.

If you elect to accept the Offer, your JOHNSON JOHNSON COM USD1.00 shares will not be available for you to sell, unless this Tender lapses.
2 Tender part of your holding of 37 JOHNSON JOHNSON COM USD1.00 shares.

If you elect to accept the Offer, your JOHNSON JOHNSON COM USD1.00 shares on which you have accepted the Offer will not be available for you to sell unless this Tender lapses.

But it doesn't give any explicit "I don't want to take part in the tender". But instead it gives a radio button option as I've attempted to illustrate below:

Making My Decision:
O I elect to tender my holding of 37 JOHNSON JOHNSON COM USD1.00 shares.
O I elect to tender a number of JOHNSON JOHNSON COM USD1.00 shares.
Please enter the total quantity required: ___

So should I select the second option and state "0" as the total quantity?

thanks Matt

[simoan]

But it doesn't give any explicit "I don't want to take part in the tender". But instead it gives a radio button option as I've attempted to illustrate below:

Making My Decision:
O I elect to tender my holding of 37 JOHNSON JOHNSON COM USD1.00 shares.
O I elect to tender a number of JOHNSON JOHNSON COM USD1.00 shares.
Please enter the total quantity required: ___

So should I select the second option and state "0" as the total quantity?

thanks Matt

Strange set of options. I’d do the same as you suggest in the circumstances. Not heard anything from my broker yet. Wouldn’t surprise me if I heard nothing!

[TheMotorcycleBoy]

But it doesn't give any explicit "I don't want to take part in the tender". But instead it gives a radio button option as I've attempted to illustrate below:

Making My Decision:
O I elect to tender my holding of 37 JOHNSON JOHNSON COM USD1.00 shares.
O I elect to tender a number of JOHNSON JOHNSON COM USD1.00 shares.
Please enter the total quantity required: ___

So should I select the second option and state "0" as the total quantity?

thanks Matt

Strange set of options. I’d do the same as you suggest in the circumstances. Not heard anything from my broker yet. Wouldn’t surprise me if I heard nothing!

Actually it's pretty damn stupid IYAM, you aren't even allowed to enter zero as a quantity.

So I guess my only recourse is just to leave the Corp. action un-actioned.

Matt