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Kenvue (KVUE) is once again finding itself in the crosshairs of an activist investment firm after feeling the heat from Starboard Value earlier in the year. According to Bloomberg, TOMS Capital Management has accumulated a stake in KVUE -- the size of which is undisclosed -- and is pushing for the company to separate business units, or to sell itself outright. Since being spun off from Johnson & Johnson (JNJ) in August 2023, KVUE has delivered underwhelming financial results, as reflected in the stock's 9% decline following the separation from JNJ. That subpar performance, including five consecutive quarters of yr/yr revenue declines, has made KVUE a target for activist investors.

• On March 5, KVUE appointed two new independent directors to its Board of Directors and announced that Starboard's Chief Executive Officer and Chief Investment Officer, Jeffrey Smith, will also be joining the Board. The move has placated Starboard, which subsequently withdrew its slate of nominated director candidates. TOMS Capital Management, though, believes that more drastic measures are needed to turn KVUE's fortunes around. 
• At this point, it's not clear what specific business unit(s) TOMS Capital Management would like JNJ to spin-off or sell-off. Over the past several years the market has seen some very prominent companies either execute or announce spin-offs, such as General Electric (GE), 3M (MMM), DuPont (DD), and Honeywell (HON). Business separations can create several advantages including valuations that better reflect the individual performances and growth prospects of individual segments, streamlined operations that can reduce complexities and costs, and more strategic flexibility to pursue acquisitions and partnerships.
• In our view, spinning off the struggling skincare and beauty businesses could make strategic sense. The business segment, which owns brands like Neutrogena and Aveeno, experienced a 2.6% increase in organic sales in Q4, but a 4.5% decline for FY24. In comparison, competitor Proctor & Gamble (PG), which owns the Olay, Dove and SK-II brands, delivered organic sales growth of 3% with a low single-digit drop in FY24.
• In addition to tough competition from PG, Unilever (UL), Haleon (HLN), and others, KVUE's Skin Health & Beauty segment is contending with sluggish demand and distributor issues in China. Meanwhile, the company's Self Care business (Tylenol, Benadryl, Visine, etc.) has seen soft demand in the cough and cold category, while a stronger U.S. dollar has hurt both segments. To address these challenges, KVUE has initiated its "Vue Forward" program that's expected to contribute $350 mln in annualized savings by 2026, and it's planning a 20% boost in brand investments, focusing on advertising and social media, particularly targeting Gen Z customers.
• TOMS Capital Management doesn't seem convinced that these actions will be enough to turn the tide for KVUE. It is possible that separating the skin care business from the company could increase shareholder value, but it isn't a guarantee. For example, after disclosing its decision to spin off its freight division on December 19, 2024, shares of FedEx (FDX) are trading lower by about 12% since the announcement.

TOMS Capital Management is advocating for KVUE to further distinguish its operations after being separated from JNJ, which should lead to a more agile and streamlined business should KVUE go the spin-off route. However, a separated KVUE could also lose the sales and cost synergies and efficiencies that it enjoys as a larger company.