Kenvue IPO: Corporate cuts provide rare payday for bankers

The deep freeze in the US stock market sent Wall Street shivering. Prior to this week, the companies had raised just $2.4 billion through traditional IPOs this year, according to Dealogic. This is the lowest amount in 14 years.

For commission-hungry bankers, one hot spot persists: corporate cuts. In a carve-out, the subsidiary is separated using a standard IPO sale, rather than first distributed to shareholders via a dividend. Three of last year’s biggest IPO deals were carve-outs.

The trend continues. kenvue, the consumer arm of healthcare giant Johnson & Johnson, raised $3.8 billion in an expanded offering this week. The deal, which values ​​Kenvue at more than $41.5 billion, is the largest U.S. deal since 2021.

Kenvue, owner of painkillers Tylenol and mouthwash Listerine, made net income of about $1.5 billion on sales of $15 billion on a pro forma basis in 2022. It’s priced punchy at 28.5 times trailing earnings. That compares to the 23 times J&J itself trades and the 20 and 25 times that consumer goods firms like Reckitt Benckiser and Procter & Gamble command.

The profitable Kenvue will also carry a dividend yield of more than 3.6% based on a planned quarterly payout of approximately 20 cents per share. J&J remains the majority shareholder, with a 90% stake, following the IPO. This creates a potential inventory oversupply. Future litigation is another risk. J&J will take care of everything talc-related liabilities in the United States and Canada, but Kenvue may be subject to claims elsewhere.

The performance of recent cuts is uneven. Of last year’s top three examples, only Mobileye Global, Intel’s self-driving car unit, is trading above its IPO price. Kenvue’s slow-but-steady-growth, cash-generating businesses offer some defense. Given the recent volatility in equity markets, this should offer some comfort to potential buyers.