No. of Recommendations: 3
Quick deal facts:
* anticipated 2H FY26 close
* KVUE shareholders receive $3.50 per share and .14625 shares in KMB
* $1.1B termination fee
* anticipated $2.1B from "synergies" ($1.9B cost reduction, $0.2B margin improvements)
* accretive to combined EPS in year 2
* post-deal EBITDA multiple of 8.8
more at deal website:
https://www.leadinghealthandwellness.com/ - infographic and deal presentations, some basic information
Rough numbers:
* KVUE ttm EBIDTA: $3.55B
* KMB ttm EBIDTA $3.9B
* Income available to common shares, KMB: $1.97B, KVUE: $1.42B
* post-merger KMB shares 614M
* post-merger KMB debt $12B
* JNJ, UL EBITDA multiples 11-15.
So, naively, and ignoring the post-deal EBITDA multiple the provided, if they get the low end of that EBITDA multiple range (11) just adding the existing companies for $7.5B, and back out $12B in debt then you get approximately a $115 target price on KMB post deal. I am ignoring financing on the additional debt.
If they really achieve $2B in "synergies", and you have an entity with combined net earnings around $4B-$4.5B. On the low end that works to 72B market cap post merger averaging the current ttm p/e multiples of KMB and KVUE at 18, or $117 per share.
At $16.40 for KVUE it is equivalent to getting KMB at $88 - 14% discount - to KMB's current price and I'm guess a 30%ish return in 1-2 years and then having a stalwart/blue chip position after that.
Thoughts on KVUE issues:
KMB has been interested in KVUE's business prior to the JNJ spinoff. KVUE's regulatory and legal liabilities (non-US,Canada talc liability, current attention on acetaminophen) are noted, but are common knowledge. I would note that KMB is hq'ed in Dallas, TX so they may have a particularly good view into the latter and may get favorable regulatory and legal treatment in the current environment for better or worse.
