Kenvue
will join the
S&P 500
index prior to the opening of trading on Friday, replacing
Advance Auto Parts,
which will move to the S&P SmallCap 400 index, S&P Dow Jones Indices said late Monday.
The action could lift shares of Kenvue (ticker: KVUE) prior to the addition Friday as index funds, which control an estimated 20% of the S&P 500, buy shares in Kenvue, a consumer health company that owns such brands as Band-Aid, Tylenol, and Listerine.
Johnson & Johnson
(JNJ) stock could come under pressure due to index selling, a result of a lower weighting in the S&P 500 following its exchange offer for Kenvue.
Johnson & Johnson said Monday there was strong interest from its holders in its $35 billion exchange offer for Kenvue that expired last week. As a result, J&J holders who elected to participate are going to be able to swap only a fraction of their shares for Kenvue. The exception is that holders of less than 100 J&J shares who elected to tender all their shares in the exchange offer won’t be subject to the proration.
J&J will be swapping 1.53 billion shares of Kenvue for about 191 million of its own shares. The exchange ratio is roughly eight shares of Kenvue for each J&J share. The preliminary proration estimate is 23.8%, meaning that a holder of 1,000 J&J shares will see 238 J&J shares exchanged for Kenvue and retain the rest.
Kenvue stock was up 0.1% Monday to $22.90 and added 0.7% in after-hours trading to $23.06. J&J was down 3% Monday to $167.35. Arbitragers had been buyers of J&J and sellers of Kenvue prior to the end of the exchange offer on Friday to capture a roughly 7% spread, but that activity ended Monday.
The addition of Kenvue to the S&P 500 could result in the purchase of about 300 million Kenvue shares by indexers and sales of more than 30 million J&J shares. That could boost Kenvue and depress J&J stock prior to the S&P 500 addition on Friday. Kenvue has about 1.9 billion shares outstanding and the public float will be about 1.7 billion shares following the exchange offer. J&J is retaining a 9.5% stake in the Kenvue, which J&J took public in May.
J&J will have a reduced weighting in the S&P 500 due to the retirement of its shares from the exchange offer, which amounted to a big buyback funded with Kenvue stock.
There could be very active trading late Thursday in Kenvue prior to the S&P 500 addition.
S&P Dow Jones Indices said recently that it planned to add Kenvue to the S&P 500 after the exchange offer but it didn’t specify when. That news came Monday.
Write to Andrew Bary at [email protected]
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