Kenvue, the new name for the company behind well-known consumer health brands such as Band-Aid, Tylenol, Listerine, Johnson's and Aveeno, filed with the SEC late on Wednesday for a NYSE IPO that could raise around US$5bn as part of its previously announced separation from conglomerate Johnson & Johnson.
Goldman Sachs and JP Morgan will lead a partial IPO of the unit, which generated more than US$15bn of sales in 2021 in a consumer health market expected to grow in the low-single digits through 2025.
While the offering is expected to be all-primary, J&J will collect the bulk of the proceeds ahead of the later spin-off of its remaining stake (at least 80.1%) to its own shareholders.
Kenvue would represent the latest big carve-out or spin-off IPO from corporate America.
Last year's biggest IPOs in an otherwise bleak year for new issuance included AIG's carve-out of life insurance unit Corebridge Financial, Intel's separation of self-driving software firm Mobileye and Bausch Health's still-to-be-completed full spin-off 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, however, the parent had not mentioned an IPO as part of this plan.
One banker away from the deal said an IPO previously appeared the least likely of several options and noted J&J may still be entertaining strategic interest.
Still, the offering has been in the works for some time given Kenvue first filed confidentially on August 30.
A recent Credit Suisse report gave Kenvue an enterprise value of around US$64bn or around 16.5 times annual Ebitda of US$3.9bn.
Assuming Kenvue takes on up to US$10bn of debt and factoring an IPO discount for the sale of up to 19.9% of the unit (but potentially less), the offering could raise US$5bn–$10bn. A banker familiar with the offering described US$5bn as a "good number".
The IPO is not expected to price imminently. The timing of the filing was more driven by the need to begin investor education efforts.
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.
Strong and stable
The unit's stability and strong cashflow generation could appeal to investors amid fears of a US recession this year and with growth stocks still badly out of favour.
"It's a very big company with well-known brands and that is the kind of thing that should work in this environment," the first banker said.
On the other hand, Kenvue faces challenges associated with digital savvy upstart brands attacking its products and a reliance on a concentrated set of customers. In the filing, Kenvue said that one customer (presumably Walmart, although it doesn't say) makes up 14% of its sales, while the top 10 accounts, which include Walgreens and Costco, account 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.
In August, J&J announced the switch to an all cornstarch-based baby powder, thereby discontinuing global sales of its talc-based powder (which has long been alleged to contain traces of asbestos).
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.
J&J rebranded the unit as Kenvue in September. The name, it says, is a combination of the word "ken", meaning knowledge and used particularly in Scotland, and "vue", referencing sight.