Andrew Bary

The fall in Kimberly-Clark's stock continued for a second day and raised the prospect that an activist investor could surface and try to block its merger-of-equals deal with Tylenol maker Kenvue.

Kimberly-Clark's stock is down 1.7% to $100.55 after hitting a new 52-week low earlier in the session on Tuesday. The stock fell 15% on Monday and is way below its 52-week high of $150. The shares are in the red over the past one, five, and 10 years as well.

The Kimberly-Clark/Kenvue transaction is one of the worst-received major merger deals in recent years. Investors wondered why Kimberly-Clark was willing to buy a company with weakening sales and sizable potential legal liability related to Tylenol and talc.

The deal requires shareholder approval from both Kimberly-Clark and Kenvue. An okay is likely from Kenvue holders since Kimberly-Clark is throwing the company a lifeline, but it is less certain with Kimberly-Clark.

An activist could accumulate a stake in Kimberly-Clark and push its shareholders to reject the deal, which is due to close in the second half of next year. The activist's bet would be that Kimberly-Clark stock would rally if the deal is voted down by shareholders. If a powerful activist firm surfaces in Kimberly-Clark, the stock likely would rally.

One hurdle for an activist is that the deal requires a majority of shares voted, not total shares outstanding, to clear. That provision makes it easier for the company to get approval since a certain percentage of holders won't cast votes.

Kimberly-Clark is offering a package of stock and cash (mostly stock) that is now worth around $18.15 a share (nearly 0.15 shares of stock and $3.50 in cash per Kenvue share), Barron's estimates.

Kenvue stock is up 0.4% at $16.21 and trades at about a 11% discount to the current deal value. That's a wider arbitrage spread than would likely prevail in a deal with a scheduled closing in about a year.

But the second-half 2026 closing could be optimistic given necessary regulatory approvals, including apparently from China. The longer the time until closing, the wider an arbitrage spread should be. And there is a chance that Kimberly-Clark holders will reject the deal.

Kimberly-Clark hailed the deal to bring together "two iconic companies" and said the transaction is "attractive" financially and offers "compelling value creation for all shareholders."

One problem is that earning accretion may not occur until 2028, according to Citi analyst Filippo Falorni. In a client note, he saw the potential for over $8 a share in 2028 earnings for the combined companies. The deal also would leave the two companies with over $20 billion in debt, or nearly three times projected Ebitda, or earnings before interest, taxes, depreciation, and amortization.

There is a lot not to like in this deal -- and it's far from a sure thing that it will get to the finish line.

Write to Andrew Bary at andrew.bary@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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November 04, 2025 15:46 ET (20:46 GMT)

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