Changes all over the counter business for just over $40 billion. Now, you know candy was Tylenol, Neutrogena, Listerine, Band-Aids, Benadryl, and of course, Johnson's, among a host of other brands. KOMI is playing a 46% premium to create the second largest consumer packaged goods company on Earth. Second, keep that in mind. But Wall Street's skeptical about the deal. Stock plunged more than 14% today in response, falling to its lowest level since 2018. It was not a surprise, though. So what's the argument for this takeover? Let's go straight to the source with Michael Hsu. He's the chairman and CEO of Kimberly Clark to find out. Mr. Welcome back to Mad Money.
Jim, thanks for having me on today.
Okay. So why don't you give us the rationale? I know you and I talked before, and you know how much I like the deal, but I want other people to know how significant it really is.
Yeah, Jim, we're really excited today. This may be the second most important day in our company's history. Of course, Founder's Day is the most important, but this is really about two great iconic American companies joining forces to what? To create what we think is the preeminent global health and wellness leader. And so that's really what we're trying to build.
Now you've got two kinds of synergies. It's a glib word, but you've got both cost synergies and revenue synergies. Can you explain what both will mean? Because I think at the heart of this deal is the idea that you can boost revenues and cut costs.
Yeah. Well, here's what I'll say, Jim, is I think this is probably the single largest shareholder value creation opportunity that I'll ever experience in my career. Right. And so, you know, we think there's tens of billions in value creation opportunity, of which a lot of that is driven by the synergies that you're asking about. Certainly on the cost side, you know, I think that the history is, you know, we having operated in lower margin categories, we run very, very lean. And so generally our overhead costs tend to be in the top quartile of the industry. I think Kenvue, in our discussions with their management, they coming out of a higher margin pharma business, their costs are a little bit higher. And so we really believe that, you know, we can operate efficiently with the cost structure that we have and we can get Kenvue closer to our cost structure and operate effectively as well.
At the same time, what I thought the thing that was most attractive was, in a bizarre way, your best in certain parts of the world and their best in others, and they tend to be perfect fit.
Yeah, some directors would say the unique feature of this transaction is the complementarity of both the category portfolio and the geographic portfolio. And what I mean category is, hey, if you think baby, like we're coming at baby from two ends, we make diapers, they make Desenex and baby shampoo and baby lotion. Aveeno baby. So and so. You know, we've invested a lot of effort to create a long time, long term digital relationship with consumers, and we think it's a pretty unique competitive advantage for us. We think there's an opportunity to bring other brands along that ride along that journey.
On the geographic side, also, they happen to be, as you just mentioned, really strong in markets where we've struggled to drive penetration. That would be India, where they have a very big business. They're in 3.1 million stores in India, and we've had a tough time building that. That brick and mortar penetration there are really big in Western Europe, multibillion dollar business there. And we have almost no sales in Western.
Well, I mean Procter had one. So you had thrown up the white flag. I remember when that happened. We all cheered. But that's not what you can do now. You need every inch.
Well they have great distribution in Western Europe. They're especially strong in the pharma channel which matters in our categories as well. They're great in the doctor medical channels as well. And so we think there's a great opportunity to kind of expand there. All right. And then on our side we are strong in markets like Indonesia, South Korea, Mexico and where they're more likely penetrated. And so we really think there's a big growth opportunity.
Now do you want to get to the reservations that people expressed there. But there was one I've met with Ken. Ken, you almost instantly when they came, when they were spun off. And very nice people there from summit where I, where I live. But what struck me is I asked them what their strategy was and their strategy was, and they didn't have one for either, which shocked me and made me say, I got to tell people to stop sell this stock. Yeah, you have tremendous in both cases. Isn't that just sort of a great opportunity for you, both club and internet.
Channel development globally? Huge opportunity for both companies or for both of us together. We tend to be very strong in both the channels that you talk about, certainly in club in the United States, globally, though, I would say online sales is accounting for 100% of our growth in North America this year. Right. And because we're and we're over we're relatively over shared.
I'm surprised no one else asked that. But they just don't know. The companies as well as they should.
Are online. Shares are seven points higher, 700 basis points higher than our offline shares. And so we've made a big investment to develop great relationships, a great offering and then great interesting for the retailers. What they love about us is our data analytical capability. And that's that's what we're really good at.
Second to none. Okay. So now the first thing I heard from people was, okay, look, they don't really understand what they're buying. When they get to Tylenol. They've got to Health and Human Services secretary against them. They have an FDA administrator who says, listen, there's there's conclusive data. They have women who are pregnant who if anything goes wrong, they are naturally able to sue you and win, as we know that, unfortunately, it's so tragic. They will win if you sue. Now, all these things you went through and yet you still went through with this?
Yeah, certainly those concerns are reasonable for for anyone. I will say they came out in the middle of our detailed due diligence process. And I would say we we we conducted a very robust due diligence process. I would say our board ensured that we we brought them analysis from the world's foremost experts in, in regulatory affairs, science, medicine and the legal aspects. And so, you know, we've we've met several times as a board, you know, plowing through every one of those areas and a lot of the cases. And so what I would say, Jim, is, you know, we're aware of the situation, very aware of the situation, and we're very confident that we will create, you know, great shareholder value through this transaction.
