Kimberly-Clark is building a consumer health and wellness giant.
Kimberly-Clark (K.M.B. 0.49%) agreed to take over Kenview (KVUE +2.19%) The cash and stock deal values Kenvue at $48.7 billion. This merger will create a global leader with $32 billion in sales, with each of the 10 brands generating more than $1 billion in annual sales.
The consumer health and wellness giants are all Dividend Kings, with more than 50 consecutive years of annual payout increases. Let’s see if this deal could make the combined company an even better income stock to own for the long term.
Image source: Getty Images.
Transaction details
Kimberly-Clark plans to acquire Kenvue through a combination of cash and stock. For each Kenvue share, shareholders will receive $3.50 in cash and 0.14625 shares of Kimberly-Clark stock. The transaction values Kenvue stock at $21.01 per share, equating to a total enterprise value of $48.7 billion. After the transaction, existing Kimberly-Clark shareholders will own approximately 54% of the combined company and Kenvue shareholders will own approximately 46%.
Both companies expect this transaction to be completed in the second half of next year. Kimberly-Clark plans to raise the $6.8 billion cash component of the transaction with cash on hand, new debt and proceeds from the sale of its 51% stake in the International Family Care and Professional Business.
today’s change
(-0.49%) $-0.49
current price
$100.15
Key data points
market capitalization
$33 billion
work range
$99.22 -$101.34
52 week range
$99.22 -$150.45
volume
112K
average volume
3.2M
gross profit
35.53%
dividend yield
0.05%
Why are you pursuing this deal?
The merger of Kimberly-Clark and Kenvue will create a much larger consumer healthcare and wellness company. The combined company will generate $32 billion in annual revenue, making it the second-largest company. Procter & Gamble ($54 billion in annual health and wellness sales) Includes 10 brands that generate more than $1 billion in annual sales, including Huggies, Kleenex, Listerine, and Tylenol.
Due to its much larger size, the combined company will be able to achieve meaningful synergies. Kimberly-Clark identified incremental earnings from approximately $1.9 billion in cost synergies and approximately $500 million in revenue synergies, partially offset by expected reinvestment of $300 million. The company expects to have net proceeds of $2.1 billion within four years of closing the transaction.
today’s change
(2.19%) $0.35
current price
$16.32
Key data points
market capitalization
$31 billion
work range
$15.95 – $16.45
52 week range
$14.02 -$17.25
volume
8.9 million
average volume
34M
gross profit
58.24%
dividend yield
0.05%
The larger size will help address challenges facing Kenvue after the combined company separates from Kenvue and becomes independent in 2023. Johnson & Johnson. The company has dealt with market challenges and legal issues related to Tylenol and other products. This process led to a CEO change, strategic alternatives, and ultimately a merger with Kimberly-Clark.
What does this deal mean for dividends?
Kimberly-Clark’s portfolio of leading consumer brands has solidified its dividend for decades. The consumer goods giant has paid dividends for 91 consecutive years and has increased its dividend for the past 53 consecutive years. Meanwhile, Kenvue inherited the dividend track record of its former parent, Johnson & Johnson, which raised its dividend for 63 consecutive years. Kenvue has continued Johnson & Johnson’s legacy by increasing its payout every year since independence.
The combined company must maintain a strong financial position to be able to continue paying increasing dividends. Kimberly-Clark is taking on debt to finance the deal, but aims to reduce its leverage ratio to about 2x within two years of closing. This is consistent with its current credit ratings and maintains a strong balance sheet.
However, trading is not without risk. Kenvue has struggled since becoming an independent company. The company also faces potential legal challenges due to the implied link between Tylenol and autism. The company is also facing lawsuits over claims that its baby powder products cause cancer.
Large merged companies are better positioned to overcome these potential legal challenges, but they can still be costly. This could weigh on the stock price and potentially affect its ability to increase dividends in the future.
Potentially high-risk, high-reward transactions
The combination of Kimberly-Clark and Kenvue will create a larger consumer health and wellness company. This expanded scale will deliver meaningful cost savings and help the larger company address Kenvue’s existing legal challenges. Although these legal issues make the deal risky, once these headwinds subside, the combined company will be stronger and better positioned to enhance shareholder value.
