This morning, Kimberly Clark, which you know is the maker of Kleenex, Huggies, Cottonelle, all sorts of other paper products, now said it's buying Kenvue, that's J&J's old over-the-counter business for just over $40 billion. Now, you know, Kenvue is Tylenol, Neutrogena, Listerine, Band-Aids, Benadryl, and of course, Johnson's among a host of other brands. Kimberly-Clark's paying a 46% premium to create the second largest consumer packaged goods company on Earth. Second. Keep that in mind. But Wall Street is 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 Mike Shu. He's the chairman and CEO of Kimberly Clark to find out. Mike, welcome back to Bad Money.
Jim, thanks for having me on today.
Okay, so Mike, 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, Founders Day is the most important, but this is really about two great iconic American companies joining forces 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 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, 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, I think the history is, 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 I really believe that 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 was most attractive was in a bizarre way, you're best in certain parts of the world and they're best in others and they tend to be a 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 by category is, hey, if you think baby, we're coming at baby from two ends. We make diapers, they make Desitin and baby shampoo and baby lotion. So, we've invested a lot of effort to create a 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 brick and mortar penetration. They're really big in Western Europe. Multi-billion dollar business there and we have almost no sales in Western Europe.
Well, I mean Procter had won. 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 expand there.
And then on our side, we are strong in markets like Indonesia, South Korea, Mexico, and where they're more lightly penetrated. And so we really think there's a big growth opportunity.
Now, do you want to get to the reservations the people are expressing? But there was one. I met Kenvue almost instantly when they came when they were spun off. They're very nice people, and they're from Summit where I live. But what struck me is I asked them what their club strategy was and their internet strategy was, and they didn't have one for either. Yeah. 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 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 relatively overshared.
I was surprised the analysts asked that, but they just don't know the companies as well as they should. Mike,
Our 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 what we're really good at.
