Wall Street trading desks put out estimates on proportionality and the consensus appears to be around 30%, consistent with the proportional distribution on

General Electric

(GE) exchange offer for

Financial synchronization

in 2015.

Shares of Johnson & Johnson fell 0.3% on Tuesday, to $172.94, while Kinvo shares were up 1.4%, at $23.26.

The three-day pricing period started on Monday and will end on Wednesday. Based on trading activity on Monday and Tuesday, J&J holders should receive approximately eight shares of Kenvue for every J&J share, or about $186 per share of J&J stock.

J&J provides an update on the show on a web site. There is also a file Question and Answer for investors and a A long S-4 document From Kenvue that defines the bargain.

J&J is scheduled to announce the swap ratio on Thursday based on the volume-weighted average stock prices from Monday through Wednesday.

J&J plans to swap 1.5 billion shares of Kenvue stock for its own shares in what amounts to a massive share buyback. The total offer could reach 1.7 billion Kenvue shares, or about 90% of the shares outstanding. Wall Street expects the entire amount to be exchanged, resulting in the retirement of about 8% of J&J shares.

One wrinkle is that J&J will issue no more than approximately 8.05 Kenvue shares for every J&J share. If the ratio rises above 8.05 based on the stock prices of the two companies, J&J investors will receive a discount of less than 7%. Based on trading activity on Monday and Tuesday, the ratio should be close to 8.05. If the cap is not breached, J&J holders will receive approximately $107.50 in Kenvue stock for $100 in J&J stock.

One potential reward for bid participants is that Kenvue stock is down nearly 5% since the exchange offer was revealed in July, due in part to arbitrage pressures. Arbs bought J&J and shorted Kenvue to take over the spread.

City

Analyst Filpo Vallorni wrote in a note on Tuesday that he expects Kinfo may rally once the exchange offering expires.

“KVUE shares were pressured by event-driven funds during the tender-exchange period and we expect additional volatility during the middle period (8/14-16) and on 8/21-22 as event-driven funds adjust positions post-close. We expect KVUE to outperform in “The following weeks, as shares will return to trading based on fundamentals. In addition, we expect a tailwind from index fund demand for KVUE shares following S&P Global’s announcement last week that the company will be added to the S&P 500 after the completion of the exchange offering period.”

He has a price target of $26 per share.

Kenvue now trades at about 18 times expected 2023 earnings per share and yields 3.5%. J&J brings in about 16x expected earnings for 2023 and yields 2.7%.

J&J holders of “single lots” of 99 shares or less who agree to exchange all of their shares will be able to fully participate in the offering and will not be prorated. This seems like a suitable setup for retail investors, such as Barron I mentioned recently.

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