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The cash-and-stock deal, announced earlier on Monday, is set to close late next year. It brings the maker of Kleenex tissues and Huggies diapers into a slew of new categories like skin care and pain relief that executives said are growing faster and offer higher margins than its existing portfolio of toilet paper, baby wipes and adult incontinence products. But Monday's sharp selloff in Kimberly-Clark's shares suggests investors are not sold. Sign up here. Kimberly-Clark CEO Mike Hsu told Wall Street analysts on Monday that the company plans to drive growth by bringing its strategy of introducing new and improved products to Kenvue, whose sales have faltered. He named baby care, women's health and products geared toward older consumers as growth opportunities for the combined company. "We built the engine, and we're eager to deploy it to Kenvue," he said. INVESTORS REACT NERVOUSLY Talks between the two started after the Tylenol maker's CEO, Thibaut Mongon, left this summer and the company said it was reviewing strategic alternatives, the sources said. Kimberly-Clark said it expects $2.1 billion in annual cost savings, but its shares closed 14.6% lower on Monday as analysts raised concerns about the combination. Shares of the smaller Kenvue closed 12.3% higher even though the deal value put an implied 46% premium on Kenvue. "Considering the drop in Kimberly-Clark's market cap was more than the gain in Kenvue’s, the market is expressing skepticism," said Brian Jacobsen, chief economist at Annex Wealth Management. BNP Paribas analysts said the merger had a "questionable strategic fit" because the companies' drugstore staples do not have much apparent overlap, making it harder to deliver cost savings. There is also risk "from weakening consumer buying power," Robert Moskow of TD Cowen wrote. Analysts have said that less affluent Americans are stressed by rising healthcare costs and the potential loss of federal food benefits during the U.S. government shutdown. Moreover, Kimberly-Clark is entering the over-the-counter drug category that is highly regulated by the Food and Drug Administration, a regulator it has not encountered when selling tissue and paper products. Kimberly-Clark and Kenvue did not immediately respond to requests for comment. Kenvue also faces legal and political pressure because of recent statements from U.S. President Donald Trump and Health and Human Services Secretary Robert F. Kennedy Jr. that its Tylenol pain reliever causes autism and attention deficit hyperactivity disorder in children whose mothers took the drug during pregnancy. However, doctors and medical organizations consider the active ingredient in the drug, acetaminophen, the best option to treat fever and pain during pregnancy. Sales in its self-care unit, which includes Tylenol, fell 3.8% in its most recent quarter. Kenvue and former parent Johnson & Johnson also are battling lawsuits claiming its talc-based products lead to cancer. Kimberly-Clark executives are eying fast-growing international markets including China, and it also has footprints in countries with high rates of cigarette smoking, which could benefit Kenvue's smoking cessation product Nicorette, Hsu said. Kenvue, meanwhile, has over 3.1 million points of distribution in India, where Kimberly-Clark's products have had trouble catching on. "That will be great for Huggies and some of the other brands that we have," Hsu said. Reporting by Jessica DiNapoli and Abigail Summerville in New York; Additional reporting by Juveria Tabassum and Ragini Mathur in Bengaluru; Editing by Lisa Jucca and Matthew Lewis Our Standards: The Thomson Reuters Trust Principles., opens new tab New York-based reporter covering U.S. consumer products and the companies that make them, and the role they play in the economy. Previously reported on corporate boards and distressed companies. Her work has included high-impact stories on CEO pay, Wall Street bubbles and retail bankruptcies. Abigail is on the M&A team and writes about consumer and retail deals. She joined Reuters in 2022 from Debtwire where she covered leveraged finance and the primary debt market for three years. Previously, her work has appeared in the Wall Street Journal, CNBC and the Boston Business Journal. She majored in business journalism at Washington and Lee University.
