Kimberly-Clark (KMB 1.71%) has agreed to acquire Kenvue (KVUE +0.00%) in a cash-and-stock deal, valuing Kenvue at $48.7 billion. The merger will create a $32 billion global leader in health and wellness by revenue, with 10 brands generating over $1 billion in annual sales each.
The consumer health and wellness giants are both Dividend Kings, with more than 50 years of consecutive annual payout increases. Here's a look at whether this deal will make the combined company an even better income stock to hold for the long haul.
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Details on the deal
Kimberly-Clark will acquire Kenvue using a combination of cash and stock. For each Kenvue share, shareholders will receive $3.50 in cash and 0.14625 shares of Kimberly-Clark. This deal values Kenvue shares at $21.01 each, representing a total enterprise value of $48.7 billion. After the transaction, existing Kimberly-Clark shareholders will own approximately 54% of the combined company, while Kenvue shareholders will hold about 46%.
The companies expect the transaction to close in the second half of next year. Kimberly-Clark intends to fund the $6.8 billion cash component of the deal with its cash on hand, new debt, and the proceeds from the sale of a 51% interest in its International Family Care and Professional Business.
NASDAQ: KMB
Key Data Points
What's driving this deal?
Kimberly-Clark's merger with Kenvue will create a much larger-scale consumer healthcare and wellness company. The combined company will generate $32 billion in annual revenue, catapulting it to be the second-largest player in the space behind Procter & Gamble ($54 billion in annual health and wellness sales). It will have 10 brands that generate over $1 billion in annual sales, including Huggies, Kleenex, Listerine, and Tylenol.
That much larger scale will enable the combined companies to capture meaningful synergies. Kimberly-Clark has identified about $1.9 billion of cost synergies and about $500 million in incremental profit from revenue synergies, partially offset by an expected reinvestment of $300 million. The company anticipates capturing this $2.1 billion net benefit within four years of closing the deal.
NYSE: KVUE
Key Data Points
The larger scale will also help the combined company navigate the issues Kenvue has faced since becoming independent in 2023, following its separation from Johnson & Johnson. The company has dealt with market challenges and legal issues related to Tylenol and other products. This process led to the replacement of the CEO and a review of strategic alternatives, culminating in the merger with Kimberly-Clark.
What does the deal mean for the dividend?
Kimberly-Clark's leading consumer brand portfolio has made it a dividend stalwart over the decades. The consumer products giant has paid dividends for 91 consecutive years and has increased its payment for the past 53 in a row. Meanwhile, Kenvue has inherited the dividend track record of its former parent, Johnson & Johnson, which has raised its payment for 63 straight years. Kenvue has increased its payment each year since gaining its independence, continuing in the heritage of Johnson & Johnson.
The combined company should be in a strong financial position to continue paying a growing dividend. While Kimberly-Clark is taking on debt to fund the deal, it aims to reduce its leverage ratio to around 2 times within two years of closing the transaction. That's consistent with its current credit rating, preserving its strong balance sheet.
However, the deal isn't without risk. Kenvue has struggled since becoming an independent company. Further, the company is facing potential legal challenges due to suggestive links between Tylenol and autism. Additionally, it's facing lawsuits over claims that its baby powder products caused cancer.
While the larger-scale combined company will be in a better position to weather those potential legal issues, they could still be costly. This could weigh on the stock price and potentially impact its ability to grow the dividend in the future.
A potentially high-risk, high-reward deal
Kimberly-Clark's merger with Kenvue will create a larger consumer health and wellness company. This increased scale should deliver meaningful cost savings and help the larger company address Kenvue's legacy legal issues. While the deal is risky due to these legal challenges, the combined company will be stronger and better positioned to enhance shareholder value once these headwinds subside.
