Kimberly-Clark Finishes Kenvue Buy

Kimberly-Clark completed its acquisition of Kenvue on Monday, closing a transaction that values the Tylenol maker at nearly $49 billion including debt.

The deal was announced almost exactly a year before it closed. Kenvue, which was spun off from Johnson & Johnson in May 2023, brings brands such as Band-Aid, Zyrtec, Neutrogena, and Listerine to the Kimberly-Clark portfolio alongside Huggies, Kleenex, and Cottonelle.

Shareholders received the news with mixed reactions. Kimberly-Clark shares rose 0.3% in Monday's session to close at $108.25. Jim Cramer, who added the stock to his portfolio in early September, said he would wait for weakness before buying more shares.

The company reaffirmed its financial targets for the merger. Management projects $1.9 billion in cost and expense reductions within three years. It also expects $500 million in incremental profits from increased revenue, partially offset by $300 million in reinvestments.

CEO Michael Hsu told CNBC that Kimberly-Clark aims to accelerate growth at Kenvue by applying its consumer packaged goods capabilities. He noted that Kenvue's e-commerce strategy and product categories are underdeveloped compared to Kimberly-Clark's infrastructure. Hsu stated that the combined entity is further along in building digital and retail relationships than Kenvue was as a standalone entity.

Inflation remains a challenge. Hsu acknowledged that higher input costs driven by the Iran war require careful management to keep prices affordable for lower- and middle-income consumers. He compared the current situation to the post-pandemic period, when Kimberly-Clark faced $3.4 billion in inflationary costs over two years. He said the combined company currently faces only a few hundred million in similar costs.

The acquisition also transfers Tylenol's legal risks to Kimberly-Clark. A federal appeals court recently revived more than 500 lawsuits alleging that prenatal Tylenol use contributed to autism or ADHD in children. Kenvue lost a bid to have that decision reconsidered about two weeks ago. Hsu defended the product's safety profile, citing recent studies and double-digit growth in consumption data. He also highlighted Tylenol with Naproxen, which became the first FDA-approved over-the-counter pain reliever combining acetaminophen and naproxen sodium in July.

Kimberly-Clark plans to maintain its dividend, which it has increased for at least 50 consecutive years. The stock currently yields 4.73%. Hsu said the company expects earnings to be accretive by year two and aims to reduce leverage to about 2.0 times while maintaining its single-A credit rating.