The tax-free spin-off proposes to form the new publicly traded company, Halyard Health and will also lead to an increased share re-purchase, to take into account expected proceeds from the sale.
Kimberly-Clark will hold onto one in nine of the Halyard common stock which will be maintained in its portfolio as of October 23rd , and the spin-off is expected to take effect on October 31st.
Adding to the Kimberly-Clark war chest
The spin-off will also result in Halyard making a one-time cash payment from the proceeds of the spin-off that will raise Kimberly-Clark’s share repurchase target to $2 billion, up from previous estimates in the region of $1.3bn to $2bn.
"The spin-off will let Halyard Health pursue its own value-creation opportunities as a focused healthcare company," said Thomas J. Falk, chairman and chief executive officer of Kimberly-Clark Corp.
"Looking ahead, we continue to be optimistic about our prospects to deliver strong returns to shareholders through successful execution of our Global Business Plan."
Enhancing the business focus
The spin-off will see Kimberly-Clark’s business portfolio re-tuned to have a greater focus on its mainstay business of wipes, tissue products and personal care.
In recent years the company has been hit by challenges in its developed markets, particularly in Europe, but this has been counterbalanced by a much stronger performance in emerging markets.
The personal care segment is it largest, representing almost half of total revenues, while the healthcare segment is its smallest, representing a turnover of $0.4bn in the last quarter ending June 30th, out of a group turnover of $5.4bn.
Healthcare goes in a new direction
The healthcare division also had the weakest performance during the last quarter, with revenues falling by 1%, whereas revenues in the personal care division rose by 2%.
Newly appointed Halyard Health COO Chris Lowery told financial news provider Seeking Alpha: “One of the benefits of the spin-off for Halyard is that we will be able to independently set our own direction and re-invest more appropriately in the business for growth. As a result, I think across our portfolio, we will be able to accelerate our growth.”
Likewise, it is expected the spin-off will give the opportunity for Kimberly-Clark to concentration on the its most successful brands, particularly in the personal care division, which it hopes will positively affect the bottom line in the next financial year.