Johnson & Johnson / Kenvue Odd Lot Tender Arbitrage Deal (Results)

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Update 8/24: Here are the final results of this odd lot tender. See original post below for past details, although the opportunity has passed. Per, the final exchange ratio was 1 share JNJ to 8.0324 shares of KVUE. The deal was oversubscribed, with a final proration factor of ~23.2% of shares tendered. However, those with “odd lots” of 99 shares or less were not subject to proration, which created an opportunity for smaller individual investors.

Here are the stats:

  • 8/14 prices (closing), JNJ $173.44 and KVUE $22.94.
  • 99 shares of JNJ @$173.44 = $17,171 (8/14)
  • 8/24 prices (intraday), JNJ $165.36 and KVUE $23.32.
  • 99 shares of JNJ tendered = 795.20 shares of KVUE.
  • 795.20 shares of KVUE @$23.32 = $18,544 (8/24)

Net profit on 99 JNJ shares bought 8/14, tendered, and sold 8/24: ~$1,350. If you sold your resulting KVUE and immediately bought JNJ back again intraday on 8/24, you would end up with ~112 shares of JNJ.

For the curious, the current market caps are JNJ $430 billion and KVUE $44.5 billion. So if you wanted to keeping owning the “original” JNJ components in a weighted manner, that would be roughly 90% JNJ and %10 KVUE. (JNJ still owns about 9.5% of KVUE after this split-off.)

Original post 8/12:

Everyone knows Johnson & Johnson (JNJ), but fewer know that the huge company spun off its consumer health division (Tylenol, Band-Aid, etc) earlier in 2023 and called it Kenvue (KVUE). JNJ kept its pharmaceutical and medtech divisions, but also still owns about 90% of KVUE. Moving forward with the split-off, they are offering JNJ shareholders the option to tender roughly $100 of JNJ and get $107 of KVUE stock in return.

They are incentivizing JNJ shareholders to help them complete the split-off, and it’s a good deal, almost too good as it may be “oversubscribed” and tenders may be pro-rated. However, there is an “odd lot” provision in the deal, where if you only have 99 shares of less of JNJ and tender them all, you won’t be subject to pro-ration. This is a small corner where small individual investors can gain a small advantage that the bigger money can’t access.

Now, I’m not an expert on this stuff by any means, and there are risks involved. The following two articles and the official informational site explain the various details and risks in much better detail.

From the official site above that tracks the share prices for the exact tender ratio (upper limit not in effect at time of writing):

If the Exchange Offer is oversubscribed and Johnson & Johnson cannot accept all tenders of J&J Common Stock at the exchange ratio, then all shares of J&J Common Stock that are validly tendered will generally be accepted for exchange on a pro rata basis in proportion to the number of shares validly tendered, which is referred to as “proration.” Stockholders who beneficially own “odd-lots” (less than 100 shares) of J&J Common Stock and who validly tender all of their shares will not be subject to proration (other than participants who hold odd-lot shares as a participant in the Savings Plans).

To quickly summarize the potential deal:

  • Buy 99 shares* of JNJ at your broker, for an approximate cost of $17,000.
  • Tender *all* your shares through your broker . You can’t own 100+ shares and only tender 99. The deadline is supposed to be 8/18, but some brokers may require your tender instructions earlier than that. (At Fidelity it is 08/17 at 7pm ET.) I’d do it as soon as you can.
  • If all goes smoothly (not guaranteed by me), then you’ll get ~$18,200 of KVUE approximately 7 business days after the deadline. You can sell the shares for cash if you want to realize a potential profit of ~$1,200. You may get a little less depending on the relative share prices of JNJ and KVUE.
  • * You can buy less than 99 shares for less financial commitment (and less upside), but you have to tender them all.

This is the type of deal that I find both interesting and educational, on top of having a positive expected value. Warren Buffett today wouldn’t bother with this deal, but Warren Buffett age 14 might. This is more of a calculated gamble, rather than a fixed return. There is risk involved, including either the deal being canceled somehow (you keep 99 shares of JNJ) or the limit ratio being reached and you get less than 7.5% premium of KVUE. You should perform your own due diligence.

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  1. Jonathan,

    Do you think this would work in a Fidelity brokerage link within a 401k?

  2. Really interesting! How exactly do you “tender” shares?

  3. Would this work across different brokers? I.e., could you pull this off with 99 shares at Brokerage A and 99 shares at Brokerage B?

    • I don’t know if it would work, but it’s not allowed under the tender offer terms.

      • Rob Bringgardner says

        I tried something like this. I tendered 99 shares of JNJ in my Traditional IRA and 99 shares of JNJ in my Roth IRA at the same brokerage. To my surprise, I only received my prorated shares of KVUE. I was expecting the accounts to be treated separately as odd lots, but that didn’t happen. I can’t find the language in the tender offer that describes this situation so I don’t know whether it was a mistake.

  4. To me, the risk seems that a lot of people will do this, and will want to liquidate their KVUE shares shortly after the transition (including existing JNJ shareholders who want to shift their investment back to JNJ afterward). KVUE is artificially incentivized and could crash shortly after this transition. Of course, I’m no expert and you should look at the history of other split-off offers like this to see if my hunch is right.

    I already have some JNJ in my IRA and my advisor/friend told me to just keep holding on to JNJ.

  5. SoFi charges $50 to execute the corporate action.

  6. There is quite a bit of time risk involved. The key is how long does it take your brokerage to clear the shares and make them available to sell. In theory in should be the ex date; but in practice it is not. For example, if the transaction had closed Friday but you still have no received your shares, then you would already be down .85 or 3.2% just on today’s move and still unable to sell.

  7. Kuttan Menon says

    When is the last date to buy JNJ stock and get in on this opportunity?

  8. I just read this now, and am somewhat surprised that apparently no one has mentioned that, for this to be a true “arbitrage,” one needs to effectuate a short sale of the KVUE shares. I haven’t looked into that, but I suspect there are a whole lot of high net worth individuals with grandchildren who have.

    • You are correct, and the Barron’s article does mention that some hedge funds are shorting KVUE at the same time. I’m keeping it simple, allowing for more upside potential if KVUE goes up but also not a true arbitrage.

  9. Florida Brewer says

    I’ve never participated in a tinder offer like this, but I have received shares of new companies in spin offs. Maybe it’s just my bad luck, but most of the time it has not worked out well. The share price of the new company typically holds its own or does well for a short period, but then it seems a long steady decline begins – usually until the shares are worthless. That tells me there is a reason the parent company wanted to get rid of the subsidiary in the first place.

  10. I did this at Vanguard and SoFi.

    Any idea when these shares will become available?

  11. My shares were deposited (showed up) on 8/23 but unable to trade. I could trade them on 8/24 and have updated the post with more information. My initial comment used some Google Finance stock quotes with inaccurate prices.

  12. TonyEveryday says

    @Jonathan Ping what broker did you use? I’m on M1 and I still haven’t received my KVUE shares, I was unimpressed with how they’ve handled my tender request so far, and will switching brokers going forwards.

    • I used Fidelity. They are the one of the best for anything high touch. M1 uses Apex Clearing, like many other stock trading apps, and they are… not the best for anything high touch. Fine for buy and holding ETFs, but not for anything where you might need to call an informed human.

  13. It appears 20% of my requested shares of JNJ were executed. MY account is showing 48 KVUE shares and 6 shares of JNJ were tendered. How do I get 48 shares of my 6 JNJ, does this make sense?

    • TonyEveryday says

      How many shares did you have to begin with? If you had over 99 shares, you were not an odd-size lot holder, meaning that you were subject to the diluted tender offer, which was around 20%.

      6 JNJ * 8.0324 = 48.1944, meaning you should have received 48 shares of KVUE for your 6 shares of JNJ.

      • Check with your broker to insure that the tender order was placed properly. Mine wasn’t (Fidelity didn’t specify that this was an odd lot even though it was). Submit a dispute if necessary.

  14. Why did I not receive the original post on 8/12? It is also not in my email.

  15. Used WellsFargo, got 99 JNJ shares exchanged to Kenvue end of trading day 08/24. Thank you much for this post!

  16. Bought 99 shares in 5 different accounts: Fidelity cash, IRA and HSA. Schwab IRA and Roth. The Schwab accounts and Fidelity HSA all converted properly. The Fidelity cash and IRA accounts stated an “instructed quantity” of 99, but only 23 shares accepted. Basically they pro-rated each of those odd lots despite it not being allowed for odd lots. Not sure what to do now as I am stuck with losses on the leftover JNJ shares.

    • You technically should have been subjected to proration across the board so you may have come out ahead in the end if you look at gross profit rather than ROI. You’ll also get a capital loss in your Fidelity cash account (which beats getting the full 795.2 shares in the cash account and prorated in the IRA and HSA). Live and learn I suppose. Seems like if you split your brokerages JNJ wasn’t catching it on their end (I suspect using Fidelity for two different accounts got you in the end, are you married and did you do this in you and your spouse’s accounts? With only the Fidelity cash and IRA having the same owner? Or we’re all of these accounts in your name?)

      • Good points and I agree. The Schwab accounts were both in my name only. The Fidelity HSA and IRA were only in my name. The Fidelity cash account was a joint account with my wife. That’s part of what makes this even more mysterious. I did find a Fidelity Q&A that says they look across accounts. I could not find any similar Q&A at any other brokerage, nor is the prospectus clear on this question. So I suspect this was an interpretation by Fidelity. Oh well, live and learn is right. Beware of corporate actions and 371 page prospectus, which have a lot of risk. I’m still coming out ahead overall, but not sure I would try anything like this again. Thanks for your comments!

  17. Wish I knew about this. Didn’t see your post until after the fact!

  18. This worked out fairly well for me. Fidelity made a mistake with the tender order which resulted in a delay in receiving 76% of the kvue shares. After correcting for this error my net profit is still around $1000. So thanks for the tip, mymoneyblog!

  19. TonyEveryday says

    Thanks, finally got my shares in M1. They seem to have gotten the cost basis wrong, this should have been a non-taxable event right? It’s showing:

    Cost Basis $16,937.43
    Value $18,207.47
    Unrealized gain+$1,270.04 (?7.50%)

    How would I calculate the correct cost basis?

    • That looks about right. Your cost basis is what you paid for the JNJ shares. That is your new KVUE cost basis. If you don’t sell your KVUE shares, that is unrealized gain (no taxes due yet). If you do sell, you will realize the gain (and owe taxes).

  20. I tried in M1, but they hold my stocks until now and told me they haven’t received any trading completion notice from JNJ. Do you know what’s can be going wrong? Thanks.

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