Tylenol products are displayed at I.D.A. Concession Drug Mart in Hamilton, Ont. Texas-based Kimberly-Clark plans to buy Tylenol maker Kenvue for US$48.7-billion.Nick Iwanyshyn/The Globe and Mail
After U.S. President Donald Trump warned in September that acetaminophen – the active ingredient in Tylenol – is a potential cause of autism, he inadvertently created an intriguing buying opportunity for investors who are skeptical about his approach to medical science.
A stock that now deserves a closer look: Texas-based Kimberly-Clark Corp. KMB-N, which has an attractive dividend, a beaten-up share price and a rising profile at the White House.
The maker of Huggies diapers and Kleenex tissues had no direct link to acetaminophen when Mr. Trump made his announcement.
But the company created a strong connection this week when it announced a US$48.7-billion takeover offer for Kenvue Inc. KVUE-N, which makes Tylenol among other products.
This is a bold move – for a couple of reasons.
It is a big deal at a time when investors aren’t keen on mergers among slow-growing consumer staples if they create unwieldy conglomerates.
“For the company to realize its true value in a reasonable time frame (12-18 months), management would likely have to pull off an anomalous feat – integrating a large-scale deal while continuing to sustain growth in its core business,” said Nik Modi, an analyst at RBC Dominion Securities, in a note.
What’s more, when the deal closes, possibly in the second half of 2026, Kimberly-Clark will inherit whatever legal complications follow Mr. Trump’s warnings.
Already, Texas has sued Kenvue for allegedly hiding risks associated with taking Tylenol while pregnant. The concern is that more legal action could follow.
The immediate reaction in the stock market suggests that investors aren’t taking any chances: Kimberly-Clark’s share price tumbled 14.6 per cent Monday after the deal was announced, pushing the dividend yield above 5 per cent.
So why bet that everything will work out just fine?
For starters, Kimberly-Clark’s timing appears pretty shrewd.
It announced the deal when Kenvue’s share price was mired near a record low – down more than 40 per cent since May – suggesting that a lot of risk is already priced into the stock.
Kenvue was created in 2023, when Johnson & Johnson spun out its consumer health division to focus on pharmaceuticals and medical technology.
The Tylenol maker has struggled during its brief independence, and the stock has lagged Johnson & Johnson JNJ-N by 55 percentage points this year.
Mr. Trump’s warnings about acetaminophen, despite a lack of compelling medical evidence, explain part of the lag.
But in its most recent quarterly results – for the three-month period ended Sept. 28, just days after the warnings – Kenvue reported a decline in sales from last year and a slight contraction in its profit margin, suggesting its challenges extend beyond the White House.
If Kimberly-Clark can integrate the company into its existing operations, cut costs and expand margins – a reasonable bet, given its long-term track record – Kenvue’s value should rise. Management believes the combination will deliver US$1.9-billion in savings, or cost synergies, within three years.
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The deal would also deliver attractive health and wellness brands – including Listerine, Band-Aid, Benadryl and Aveeno – that can command higher profit margins and could grow more valuable with an aging population.
“The strategic logic is: I really wanted the company to have greater exposure to higher-growth, higher-margin categories,” said Mike Hsu, Kimberly-Clark’s chief executive officer, during a call with analysts this week.
For Canadian investors, there’s a sweetener: The domestic market doesn’t have companies with Kimberly-Clark’s global reach into consumer health products. So the stock offers diversification beyond Canadian banks, gold miners and energy producers – and is relatively immune to economic downturns.
Granted, Tylenol may not be the sort of diversification you want right now. There is really no way of knowing how far the White House will go in its attempt to link acetaminophen and autism, which could weigh on Kenvue for some time.
In response to an analyst’s question about the litigation risk posed by Tylenol, Mr. Hsu said the decision to acquire Kenvue followed multiple meetings “with the world’s foremost scientific, medical, regulatory and legal experts.”
It became clear from these sessions, he said, that the opportunity from combining the two companies outweighed the risks.
And here’s a crazy thought: Perhaps science will prevail, lifting the dismal headlines that are now keeping some investors on the sidelines.
If that happens, Mr. Hsu’s big bet on Kenvue this week could pay off handsomely – and reward contrarian investors who bet on Kimberly-Clark.