Kenvue, the new name for the company behind well-known consumer health brands such as Band-Aid, Tylenol, Listerine and Aveeno, filed late Wednesday for a potentially large NYSE IPO as part of its previously announced separation from Johnson & Johnson.
Goldman Sachs and JP Morgan have been mandated to lead the IPO of a business that generated more than US$15.1bn of annual revenue in 2021 and exposed to markets expected to grow 3%-5% per year through 2025.
While the offering is all-primary, J&J will collect the bulk of the proceeds and plans to spin off its remaining stake of at least 80.1% to shareholders at a later date.
Kenvue's would represent the latest big carveout or spin-off IPO from corporate America. Last year's biggest IPOs included AIG's carveout of life insurance unit Corebridge Financial, Intel's carveout of self-driving software firm Mobileye and Bausch Health's separation of contact lens maker Bausch + Lomb.
J&J revealed in November 2021 it planned to separate its consumer health business over the subsequent 18 to 24 months to focus on its pharma and medtech businesses.
Until now, the parent had not mentioned an IPO as part of this plan. Still, the offering has been in the works for some time given Kenvue first filed confidentially on August 30 last year.
A recent Credit Suisse report valued Kenvue at a base enterprise value of around US$64bn or 16.5x annual Ebitda of US$3.9bn.
Assuming Kenvue takes on up to US$10bn of debt and taking into account an IPO discount for the sale of up to 19.9% of the unit, the offering could conceivably raise US$5bn-$10bn.
All the IPO proceeds and those from a related debt financing will go into J&J’s pockets, possibly helping it cover the cost of November’s US$16.6bn acquisition of heart, lung and kidney support tech firm Abiomed.
Kenvue, which will be led by current J&J executives Thibaut Mongon (the CEO designate) and Paul Ruh (the CFO designate), also expects to pay quarterly dividends.
The unit's strong cashflow generation could appeal to investors amid fears of a US recession this year and with growth stocks still badly out of favor.
On the other hand, Kenvue faces challenges associated with digital-savvy upstart brands attacking its products and its reliance on one customer for 14% of its sales (and the top 10 accounts for 44%).
According to the filing, J&J is retaining responsibility for significant product liability claims from sales of talcum powder (mostly from Johnson's baby powder) in the US and Canada, though Kenvue will be responsible for liabilities for products sold elsewhere in the world.
J&J reports its fourth-quarter results on January 24, while management will also present to investors on January 9 at the JP Morgan Healthcare Conference.