Activist Investors in Kenvue Faced Big Losses. Kimberly-Clark Saved the Day.
D.E. Shaw, one of the Tylenol-maker’s largest shareholders, stood to lose over $200 million but is now expected to break even on its bet
Kimberly-Clark KMB -13.10%decrease; red down pointing triangle not only saved its embattled rival, Kenvue KVUE 14.92%increase; green up pointing triangle, with a $40 billion takeover deal. It also saved activist hedge funds targeting the Tylenol-maker who had been staring down massive losses.
At least four activist investors held stakes in Kenvue’s shares, betting on a turnaround of the company’s operations or an outright sale. What they didn’t anticipate was that the Trump administration would link acetaminophen, the active ingredient in Tylenol, as a potential cause of autism and open the company to the potential of costly legal action and lost sales.
Kenvue has maintained that the accusations are baseless, and both scientists and medical groups have denounced Trump’s claims as unfounded.
Still, Trump’s claims helped trigger a selloff of almost 22% in Kenvue’s share price before Monday’s deal announcement.
D.E. Shaw, one of the Tylenol-maker’s largest shareholders, stood to suffer some of the biggest losses, with a stake of around 3%, according to people familiar with the matter. The New York-based hedge fund had endured a paper loss of more than $200 million on its investment before Monday, according to the people.
But now because of Kimberly-Clark’s offer, the activist investor is set to break even on its investment, the people said.
Toms Capital Investment Management is another big shareholder in Kenvue with a more than 3% stake that it started building earlier this year.
Last month, at a Morgan Stanley-sponsored hedge fund conference in New York, Ben Pass, the chief investment officer at Toms Capital Investment Management, argued that legal risks around Tylenol were obscuring the company’s value, according to people who heard his presentation.
He also argued the company has valuable brands that if managed better could be worth substantially more than reflected in the current stock price, the people said. Kenvue’s other brands include Aveeno, Band-Aid, Listerine and Neutrogena.
Toms plans to keep holding its Kenvue shares after Monday’s deal, some of the people familiar with the matter said.
“Congratulations to Kimberly-Clark and Kenvue for creating a great American company poised to deliver tremendous benefits for both consumers and shareholders,” Pass said in a statement.
Other activist investors exposed to Kenvue’s selloff include Starboard Value, which has owned shares for at least a year. Dan Loeb’s Third Point had also built a position.
Kenvue spun out of Johnson & Johnson in 2023, going public at $22 per share to help fund growth of J&J’s pharmaceuticals and medical technology businesses. The stock initially popped but has since been in decline as the company struggled to boost organic sales even before the controversy around Tylenol.
Starboard was among the first activists to publicly place a bet on Kenvue’s prospects for a turnaround. Roughly one year ago, the firm took a significant stake and started outwardly pushing for changes. In February, Starboard launched a proxy fight, resulting in the appointment of the firm’s Chief Executive Officer Jeff Smith to Kenvue’s board.
Around that time, Kenvue’s stock was trading at $23.04, and the price had fallen almost 38% before Monday.
It isn’t clear whether Starboard made money from its bet. But it is a lot better off today because of the deal, even as the value of Kimberly-Clark’s bid, at $21.01 per share, is below where Starboard first took a position.
Kimberly-Clark and Kenvue say they expect almost $2 billion in cost savings from the deal in the first three years after the transaction closes.