Johnson & Johnson (Ticker JNJ) recently completed a noteworthy exchange offer for shares of Kenvue, demonstrating a win for small-scale investors. This impressive deal allowed investors who held less than 100 shares of Johnson & Johnson to fully tender their shares, without being subjected to the proration experienced by other participants.
Investors fortunate enough to fall into this category could take advantage of a generous 7% discount on Kenvue stock. Johnson & Johnson offered this enticing inducement as part of the exchange.
On the contrary, non odd-lot holders faced a proration of 23.2%. This meant that only a fraction—less than a quarter—of the J&J shares they submitted were swapped for Kenvue. The remaining shares were returned to them.
Nevertheless, this resulted in a substantial payday of more than $1,000 for those J&J investors who tendered 99 shares of stock in the swap offer. The offer expired last week and closed on Wednesday, highlighting the success of this trading opportunity that was initially suggested by experts back in August.
As of Friday, J&J stock has seen a modest increase of 0.6%, reaching $164.91. Kenvue, on the other hand, experienced a decline of 1.1% down to $23.20. This drop was influenced by significant late buying from index funds, who sought to capitalize on Kenvue’s impending addition to the S&P 500 index before the start of trading on Friday. Notably, Thursday’s trading volume exceeded 300 million shares.
J&J Exchange Offer Results
If you’re curious about the odd-lot math, let’s break it down for you. During the final two weeks of the exchange offer, an investor purchased 99 shares of J&J at an average price of $173 per share. Now, if we calculate, the value of these shares in Kenvue (ticker KVUE) stock would be approximately $186 per J&J share. This calculation is based on the exchange ratio of 8.03 times the current Kenvue price, which is $23.20.
In simpler terms, J&J holders received 8.03 shares of Kenvue for each J&J share in the swap. So, if an investor exchanged their 99 shares, they would have made a profit of around $1,100.
Interestingly, there were approximately 6.5 million odd-lot J&J shares submitted out of a total of 800 million. This translates to about $1 billion worth of odd-lot tenders. Out of these, J&J accepted roughly 191 million shares in the offer in exchange for 1.53 billion Kenvue shares. As a result, J&J still holds about 180 million shares, representing a 9.5% stake.
What will J&J do with this stake? Well, we might find out on Wednesday when they offer updated financial guidance for 2023. With J&J no longer controlling Kenvue, there is a possibility that they might sell the stock.
One advantage for J&J in this exchange offer is that they won’t have to pay the quarterly dividend of $1.19 per share on the stock that was swapped for Kenvue. The dividend’s record date is Monday, and the stock goes ex-dividend today.
