Supersized and a strong debut: J&J’s Kenvue, Inc. (KVUE) jumped 16 percent to open at $25.53 – up $3.53 from its $22 IPO price – in its first trade at 12:47 p.m. EDT today (Thursday, May 4, 2023) on the New York Stock Exchange, according to MarketWatch. Volume: 15.7 million shares. At the closing bell, Kenvue’s stock was at $26.90 – up $4.90 from its $22 IPO price for a gain of 22.27 percent on its first day of NYSE trading on volume of 74.1 million shares. Kenvue upsized its mega-IPO to 172.81 million shares – up from 151.2 million shares in the prospectus – and priced the IPO at $22.00 – above the mid-point of its $20.00-to-$23.00 range – on Wednesday night (May 3, 2023) to raise $3.8 billion. It’s the biggest U.S. IPO since Rivian went public in November 2021. At pricing, Kenvue’s IPO more than doubled this year’s IPO proceeds – bumping up the total to about $6.2 billion so far. The IPO’s pricing date was accelerated to Wednesday night – from its original spot on Thursday night’s pricing roster. Kenvue had a valuation at pricing of about $41.6 billion, based on the increase in the IPO’s size and the pricing at $22.00. (Editor’s Note: This column, initially published Wednesday night, was updated Thursday afternoon with news of Kenvue’s debut on the NYSE.)
IPO investors have been hungry for a strong IPO. A few good deals made their debuts early this year – only to have the IPO market revert to slow motion after the banking crisis in early March. It’s been mostly micro-cap deals since then.
Within a half hour after Wednesday’s closing bell, late-stage biotech Acelyrin Inc. (SLRN proposed) increased the size of its IPO to 26.5 million shares – up from 20.6 million shares initially – at $16.00 to $18.00 to raise $450.5 million, according to an S-1/A filing dated May 3, 2023. Acelyrin’s IPO is scheduled to price Thursday night (May 4, 2023).
As for Kenvue’s IPO, the Street was anticipating this deal with an intensity normally seen among those waiting for Santa Claus.
“We haven’t had a high-profile deal like this for a long time,” a veteran IPO trader said Wednesday afternoon – ahead of the Kenvue IPO’s pricing. “This one is going to see some action.”
Goldman Sachs and J.P. Morgan led the team of nine joint book-runners, including BofA Securities, Citigroup, Deutsche Bank Securities, BNP Paribas, HSBC, RBC Capital Markets and UBS Investment Bank.
The co-managers’ team was made up of 10 banks.
Johnson & Johnson (JNJ) is spinning off its profitable consumer health business – Band-Aid, Tylenol, Listerine, Neutrogena and Johnson’s Baby Powder are the household names among its brands – into a company known as Kenvue Inc.
“They have seven #1 brand positions,” a veteran IPO pro says. “They’re in the right sector. Healthcare is the one sector that everyone feels will continue to do well, even if the market takes a beating.”
J&J will still control about 91 percent of the voting power of Kenvue’s outstanding stock after the IPO.
For the year ended Dec. 31, 2022, Kenvue earned net income of $2.09 billion on revenue of about $14.95 billion.
Kenvue intends to pay a quarterly dividend of 20 cents a share to stockholders of record in the fiscal quarter that ends on Oct. 1, 2023. That payout of 20 cents a share annualizes to a dividend yield of 3.7 percent, assuming the IPO is priced at the $21.50 mid-point.
“Institutions are going to have to own it,” a savvy IPO investor said earlier this week, in anticipation of the IPO’s pricing. “It’s profitable and it’s going to pay a dividend. Barron’s says it’s a super home run.”
He adds that “you know that it’s going to end up in the S&P 500.”
Kenvue, based in Skillman, N.J., is a “pure play” company in the consumer health sector, the IPO professionals say. That status enhanced its appeal, the pros say.
Its competitors include Procter & Gamble (PG) and Colgate-Palmolive (CP) – behemoths whose consumer product portfolios go well beyond healthcare – as well as Haleon plc (HLN), which was spun off by GlaxoSmithKline in 2022. Haleon’s brands include Sensodyne toothpaste and Advil.
There’s some concern about Kenvue being named recently as a defendant in another talc baby powder lawsuit.
In early April, Johnson & Johnson said it had agreed to pay $8.9 billion to settle thousands of lawsuits in which the plaintiffs said their use of talc-containing Johnson’s Baby Powder had caused ovarian cancer, The Wall Street Journal reported.
– Johnson & Johnson says talc is safe and it does not cause cancer.
– Kenvue’s amended prospectus, page 103, says:
– “On August 11, 2022, we announced the commercial decision to transition to an all cornstarch-based baby powder portfolio. As a result of this transition, talc-based Johnson’s Baby Powder will be discontinued globally in 2023. Talc-based Johnson’s Baby Powder was previously discontinued during 2020 in certain markets including the United States and Canada. We do not expect the impact of this change to be material.”
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