Kenvue, a consumer health company known for its popular brands such as Band-Aid, Tylenol, and Listerine, is set to join the prestigious S&P 500 index. This exciting development comes as Advance Auto Parts makes way for Kenvue by moving to the S&P SmallCap 400 index. The official addition of Kenvue to the S&P 500 index will take place before the opening of trading on Friday, signifying a significant milestone for the company.
The inclusion of Kenvue in the S&P 500 index is expected to have a positive impact on its stock value. As index funds, which control approximately 20% of the S&P 500, acquire shares in Kenvue, the company’s stock may experience an upward surge. This change is attributed to the buying power of these funds as they adjust their portfolios to include Kenvue.
However, while Kenvue celebrates its inclusion in the S&P 500, Johnson & Johnson (JNJ) may face some challenges. As a result of its exchange offer for Kenvue, Johnson & Johnson’s stock could come under pressure due to index selling. This pressure is a direct consequence of the lower weighting that Johnson & Johnson will have in the S&P 500 following the exchange offer.
Johnson & Johnson recently announced its exchange offer for Kenvue, and the response from its shareholders has been overwhelmingly positive. The company’s $35 billion offer attracted strong interest from its holders. However, not all shareholders will be able to swap their shares for Kenvue. Only a fraction of their shares will be eligible for the exchange. Holders of less than 100 J&J shares who elected to tender all their shares will not be subject to the proration.
The exchange ratio for the swap is approximately eight shares of Kenvue for each J&J share. Based on a preliminary proration estimate of 23.8%, a holder of 1,000 J&J shares can expect to exchange 238 J&J shares for Kenvue, with the remainder being retained.
The inclusion of Kenvue in the S&P 500 index marks a significant achievement for the company, while Johnson & Johnson navigates the implications of the exchange offer. As the market awaits these developments, both companies remain in the spotlight.
Kenvue Stock Sees Growth and J&J Shares Experience Decline
Kenvue stock saw a slight rise on Monday, increasing by 0.1% to $22.90. In after-hours trading, it experienced a further increase of 0.7% to $23.06. On the other hand, J&J shares suffered a 3% decline on Monday, dropping to $167.35.
Previously, arbitragers took advantage of the exchange offer before it ended on Friday by buying J&J and selling Kenvue. This strategy aimed to capture a spread of approximately 7%. However, this activity ceased on Monday.
The inclusion of Kenvue in the S&P 500 index may lead to the purchase of around 300 million Kenvue shares by indexers. Conversely, more than 30 million J&J shares are expected to be sold. Consequently, Kenvue stock may experience an upward trend while J&J stock could potentially be affected negatively before the S&P 500 addition takes place on Friday.
Currently, Kenvue has approximately 1.9 billion shares outstanding. Following the exchange offer, the public float will consist of roughly 1.7 billion shares. It is worth noting that J&J will retain a 9.5% stake in Kenvue, as it had taken the company public in May.
Due to the retirement of its shares resulting from the exchange offer, J&J’s weighting within the S&P 500 will be reduced. This major buyback program was funded with Kenvue stock.
As the S&P Dow Jones Indices recently announced their intention to add Kenvue to the S&P 500 after the exchange offer, there may be high trading activity in Kenvue shares late on Thursday.