Johnson & Johnson (JNJ) announced that are offering a trade swap with Kenvue (KVUE). However, the deadline for this deal is August 18th. Investors will need to decide soon if they wish to participate in the $40 billion dollar exchange. Several brokerage firms want J&J to give customers instructions before the august 18th deadline. For example Charles Schwab needs instructions by the end of day Monday by phone or online.
Monday will begin the pricing period for the exchange and this period will end on Wednesday. Details will follow online afterwards. As it stands, if you own J&J shares, you should get 8 shares of Kenvue for each J&J share you own. This is just an estimate and the exact ratio will be announced on Thursday.
Shareholders of J&J will need to elect one of two options soon, participate in the exchange or tax-free exchange called a split-off. Unlike a spinoff, J&J shareholders can swap all of their shares, keep some or none of their holdings for the Kenvue stock. If investors do nothing, they will retain all their shares of J&J.
If you are a Fidelity user like myself, you have until the end of Thursday to make your instructions. Fidelity has stated that they will handle directions on a best-efforts basis up to 2PM on Friday.
Investors using Merrill will also have till the end of day on Thursday, 5PM eastern time.
I would suggest that anyone who has shares in J&J not to delay in making their decision. The sooner your decision is made the better it will be. Do not be the person who does it last minute and something happens and there is an error. Not saying there will be but I like to do things early so I can fix any issues that may arise and this situation would be no different.
If you are looking for a financial invective on why you should swap, J&J is offering the Kenvue swap at an effective 7% discount of market price. This means, you roughly get $107.50 in Kenvue stock for the price of $100 J&J stock.
Analysts say the offering is predicted to be oversubscribed and as a result, J&J shareholders will be prorated. This means that they will be able to swap only a part of their shares of J&J for Kenvue. This period is tough to accurately predict but it will be expected to be in the 20% to 40% range. J&J shareholders of “odd lots” of 99 shares or less who have agreed to exchange all of their shares will be able to fully participate in the offering. No proration will happen in this case. This feature could make it more profitable for retail investors.
Beyond retail investors, the offering is attracting interest from Wall Street arbitragers who are buying J&J stock and selling short Kenvue to capture the spread. Index funds and active managers also are weighing whether to participate. One reason to make the swap is that Kenvue will be added to the S&P 500SPX +0.58% after the offer is completed.
Do NOT Delay!
With this in mind, do not delay in making your instructions if you own shares in Johnson & Johnson. As I said above, doing it early will give you peace of mind and if there are any issues you can work them out now instead of later. Consider your financial advantage before making this decision.