Johnson & Johnson On Monday, it said it plans to reduce its stake by at least 80% in Kenvue, the consumer health company it founded as an independent company earlier this year, via a stock exchange offering.

J&J owns 89.6% of the common shares of Kenvue, which amounts to more than 1.72 billion shares.

The exchange offer, also known as a split, will allow J&J shareholders to swap all or a portion of their shares for Kenvue common stock at a 7% discount. It is expected to be tax deductible, J&J said in a statement.

The company indicated that the split is voluntary for investors and is scheduled to close on the third of August. 18, which is much earlier than expected.

J&J said it received a waiver denying the stock lock period associated with Kenvue’s initial public offering in May. This lockout agreement required J&J to wait 180 days to sell any of its stock.

“We believe now is the right time to distribute Kenvue shares, and we are confident that the split is the appropriate path forward to create value for our shareholders,” J&J CEO Joaquín Duato said in a statement.

Duato added that the split will increase J&J’s focus on its pharmaceutical and medical technology businesses — both of which helped the company beat second-quarter revenue and adjusted earnings last week.

J&J first announced its intention to launch a swap offering in its second-quarter earnings report Thursday, but the company provided few details on the plan. Kenvue shares tumbled after that announcement, despite second-quarter results that also beat Wall Street estimates.

When asked about J&J’s planned swap offering Thursday, Kenvue CEO Thibaut Mongon told CNBC’s “Squawk on the Street” that the company is “pleased with the way shareholders have been received for the IPO.”

“We see a great deal of alignment among our new investors in seeing Kenvue’s potential, but I can tell you we’re absolutely ready to leave as a completely independent company,” he said.

Most consumers have cut back on spending because inflation is squeezing their wallets, but they haven’t stopped paying for brand-name health and personal care products, said Kenvue CEO Thibaut Mongon.

Mongon told CNBC on Thursday that consumers are still willing to spend on the company’s branded products — even if they cut discretionary spending at retail stores and cut back on some essential items by changing their usual purchase size or switching brands at lower prices.

the Johnson & Johnson pop-up consumer Kenvue beat second-quarter revenue and adjusted earnings estimates on Thursday, helped by resilient demand for the company’s wealth from widely recognized brands like Band-Aid, Tylenol, Listerine, Neutrogena and Aveeno.

However, the company’s share price fell after J&J announced that it would launch an exchange bid to reduce its stake in Kenvue much earlier than expected.

Kenvo also noted that “private label” penetration into the consumer health products market was stable during the quarter. Private label refers to products that are manufactured and sold under a specific retailer’s name and are sold at a lower price and are intended to compete with branded products such as Kenvue.

These spending trends could bode well not only for Kenvue, but also for other companies in the consumer health, beauty, and beverage industries that may not see consumers turning to cheaper products as often despite higher prices.

“We are now living in a volatile environment with continued consumer uncertainty and continued inflationary pressures,” Mongon told CNBC. “But I think people are very focused on their health and well-being right now.”

“They want to make sure they are doing what it takes to improve their health,” he said. “They’re looking for reliable, scientifically backed, and effective solutions to take better care of their health, and that’s what we and our brands do. It’s what we’ve been doing for a long time.”

Kenvue expects continued strong demand in the coming quarters. The company expects 2023 sales to increase between 4.5% and 5.5% over last year.

RBC Capital analyst Nick Moody expressed confidence in Kenvue’s ability to “maintain its momentum,” highlighting consumer confidence in the company’s brands, health and personal care products in general.

He noted that trade reduction pressures have increased for some companies, based on their market share changes over the past few months. Meanwhile, Kenvue has gained market share, and will likely continue to do so despite the broader environment.

“If we were going to see a decline in trade with them, we would have started to see it already,” Modi said.

Like Kenvue, some beauty and beverage companies may not see the same kind of trade declines as some core consumer sectors during the current period of macroeconomic uncertainty, according to Modi.

He said beauty products such as makeup are increasingly seen as an “affordable luxury” even as inflation squeezes consumers’ budgets.

“They don’t want to feel bad about their situation and buy cheaper makeup,” Modi said.

companies like Hollandwhich sells cosmetics, skin and hair care, and other beauty products, has benefited from the flexibility of the beauty category.

Earlier this year, Ulta said its 2022 revenue exceeded $10 billion, while annual net income exceeded $1 billion — both company records. Ulta also reported first-quarter earnings that beat expectations in May, largely driven by demand for its beauty products.

Oddity Tech, a beauty and wellness company that uses artificial intelligence to develop cosmetics, also appeared to be harnessing the power of the beauty category when it made its public market debut on Wednesday. Shares of the direct consumer platform rose 35%.

Beverage companies are also well positioned, Modi said, noting that big brand names such as Coca-Cola are not at great risk of private label penetration.

Coca-Cola’s first-quarter earnings beat expectations for higher demand for its beverages. But price increases for its products, which were implemented to mitigate the impact of inflation, also helped support results.

Monjon said consumers are turning to brands and products they “know and trust” during tough economic times.

The behavior — and a growing focus on health and well-being — is fueling demand for Kenvue products, which have been “in homes for years, decades, sometimes generations,” he said.

Modi agreed, adding that the Covid-19 pandemic has greatly increased consumers’ attachment to brands, especially those that help people take care of their health.

For example, demand for Tylenol soared and outpaced other pain relievers during the pandemic as people scrambled to stock up on essential health products.

“During the time frame of Covid, you were looking to save your family or get your kids through a difficult period of time with certain medicines and products, and I think that kind of emotional connection and sharing helped sustain the brand,” Modi told CNBC.

“Consumers tend to trust these brands during the most traumatic moments in their lives, so I think that’s why we’re seeing brands like Kinview remain so resilient despite the overall pressure,” he said.

The pandemic has made consumers more able to “take their health into their own hands at home,” added Navan Tai, an analyst at BNP Paribas Ixan.

This shift is likely to benefit Kenvue and others in the consumer health field, she said, and is “an additional differentiation from other consumer categories.”

I’ve noted that Kenvue isn’t “totally immune” from decline and private-label competition. But she said product recommendations by healthcare professionals offer “some protection”.

Third-party surveys of some healthcare practitioners in the United States from 2020 to 2022 found that Tylenol was the top adult pain medication recommended by physicians nationwide, according to an April Kenvue IPO filing.

Those surveys also found that neutrogena was the leading sunscreen and acne treatment brand in the united states, while listerine was the top dentist-recommended mouthwash.

Mongon noted during the company’s earnings call that these recommendations “ultimately foster a lifetime of loyalty to our brands, loyalty that is passed down from generation to generation.”

Johnson & Johnson Kenvue priced its initial public offering at $22 a share on Wednesday, near the high end of its announced range, in an enlarged deal that should fetch about $3.8 billion.

At this IPO price, the new company would be valued at approximately $41 billion. That makes Kenvue’s debut one of the largest IPOs in the US in over a year.

The company expected to price 151 million shares between $20 and $23 a share, according to a preliminary prospectus it filed with the Securities and Exchange Commission last week.

Proceeds from the show and any profits from related debt financing transactions will go to J&J, but Kenvue will keep $1.17 billion in cash and cash equivalents.

Goldman Sachs, JPMorgan Chase, and Bank of America are acting as lead underwriters for the IPO.

The shares will begin trading on the New York Stock Exchange on Friday under the symbol “KVUE”.

The spin-off, the largest IPO since Rivian’s November 2021 IPO, may not turn around the once-moribund IPO market, which plunged in 2022. But it could be a sign of life for IPOs in the states United

The debut of Kenvue also marks the largest restructuring in J&J’s 135-year history. J&J announced the split in late 2021 as an effort to streamline operations and refocus on its pharmaceutical and medical device divisions.

Meanwhile, Kenvue is full of household names familiar to investors and the larger public, like Tylenol, Band-Aid, Listerine, Aveeno, Neutrogena, and J&J’s namesake baby powder and shampoo.

Here’s everything else you need to know about this week’s Kenvue IPO.

J&J will control 91.9% of Kenvue after the IPO — or 90.8% if the underwriters exercise their options to purchase additional shares, according to a prospectus filing.

J&J plans to distribute the remaining shares of common stock to its shareholders later this year.

Until then, Kenvue will qualify as a “regulated company” under the New York Stock Exchange’s corporate governance rules, the filing says. This would allow Kenvue to avoid some of the listing criteria, including the requirement that the company’s board of directors be made up of a majority of independent directors.

J&J will generally be able to control matters over which shareholders vote, such as the election of Kenvue board members, according to the lawsuit.

“Johnson & Johnson will continue to control the direction of our business, and concentrated ownership of our common stock may prevent you and other shareholders from influencing important decisions,” Kenvey said in the filing.

In the filing, the company said Kenvue is profitable and expects modest growth over the next few years.

Annual sales growth through 2025 is expected to be around 3% to 4% globally, according to the filing.

Kenvue reported sales of $14.95 billion for 2022 and net income of $1.46 billion on a pro forma basis. For the first quarter, which ended April 2, Kenvue estimated that it had sales of $3.85 billion and net income of about $330 million. First quarter results are preliminary.

Ten Kenvue brands generated nearly $400 million or more in sales last year.

Overall, Kenvue said 2022 sales were “well balanced” across the company’s three business divisions.

The company’s self-care unit, which includes eye care, cough and cold products, and vitamins, had net sales of $6 billion for 2022, accounting for 40% of total revenue.

Skin health and beauty products accounted for $4.4 billion in net sales last year, or 29% of all revenue. Among these products are shampoos, conditioners, hair loss treatments, and skin care.

Products in the Essential Health division, including baby products, mouthwashes, dentifrices, health protection and wound care, saw net sales of $4.6 billion, accounting for 31% of total revenue.

The company said in the filing that each of the three divisions was profitable on an adjusted operating income basis.

Kenvue noted that its global footprint is “geographically well balanced,” with nearly half of its 2022 net sales coming from outside North America.

According to the filing, the company’s net debt will be $7.75 billion.

Kenvue rounded up several J&J executives to harm the company, according to the report.

Thibaut Mongon, J&J’s executive vice president and global head of consumer health, will be CEO of the new public company. He will also sit at the board.

Paul Roh, J&J’s Chief Financial Officer of Consumer Health and former CEO of PepsiCo, will serve as CFO, and Meredith Stephens, J&J’s global vice president of the company’s consumer health supply chain division, will serve as COO.

Kenvue’s Chief People Officer, Chief Corporate Affairs Officer, Chief Technology and Data Officer, Chief Scientific Officer and group heads for various regions around the world are also from J&J.

The executives will lead a team of more than 22,000 employees in 165 countries and 25 in-house manufacturing sites, according to the preliminary prospectus.

Kenvue’s global headquarters will be in Summit, New Jersey.

J&J faces thousands of claims that baby talcum powder and other talcum products caused cancer. Some of these products fall under the company’s consumer health business.

But Kenvue will only have liabilities for those that arise outside the United States and Canada, according to its initial public offering filing as of January.

“As stated unequivocally and unequivocally, Johnson & Johnson has agreed to retain all talc liabilities — and to reimburse Kenvue for any and all costs — arising from litigation in the United States and Canada,” Eric Haas, vice president of litigation for Johnson & Johnson, said in a statement. statement last week.

But Kenvey said in the filing that “this compensation may not be sufficient” to protect the new company from the full amount of the liabilities.

J&J will continue to fight talc claims in bankruptcy court.

A federal bankruptcy judge in April paused nearly 40,000 lawsuits through mid-June. This decision was part of J&J’s second attempt to settle talc claims in bankruptcy proceedings.

The temporary suspension will give J&J time to try to get court approval for the proposed $8.9 billion settlement with the plaintiffs in the talc cases.

CNBC channel Leslie Baker Contribute to this report.