Icahn’s Bid for Clorox

I love me a good old-fashioned bidding war. That’s why I’ve become intrigued by Carl Icahn’s bid for Clorox ($CLX). For one, Clorox is one of those stable old-line consumer products companies that I like. You can project earnings pretty clearly—or at least more clearly than you can with other companies.

On Friday, Icahn bid $76.50 per share for the Clorox. The stock had closed on Thursday at $68.43 so Icahn was offering a very generous premium (11.8%).

What’s interesting is that Icahn isn’t even interested in buying the company. He already owns 9.4% and he’s more interested in getting a bidding war started between other consumer products companies. Icahn even suggested potential buyers. (Here’s his letter.)

On Friday, shares of $CLX closed at $74.55, which is short of Icahn’s offer. This means that investors are doubtful that a bidding war will start. In any event, Clorox’s board shot back saying that it had no interest in Icahn’s bid (“Our board has unanimously determined Mr. Icahn’s unsolicited proposal is neither credible nor adequate.”)

This is one of those tricky areas because the board is supposed to be working for the benefit of shareholders. As a result, the board’s position has to be that a nice premium (albeit hostile) for shareholders isn’t in their best interest. Theoretically, that can make sense. Still, it’s a lot of money to leave on the table.

Then Icahn responded with a higher bid, $80 per share (check out Carl’s letter; he goes into ALL-CAPS mode). Although it’s more than the original, I doubt that will be enough to get the board to change its mind. Perhaps it will convince them that Icahn is serious.

In my opinion, these bids over-value Clorox. Wall Street currently expects the company to earn $4.06 per share this fiscal year (which ends next June). That values CLX at nearly 20 times forward earnings. That’s just too rich.

I hate watching boards shoot down offers of over-payment. I doubt an offer like this will come again soon. I’m not sure any competing bids will come along, and Icahn may be forced to pull his offer. If I were a CLX shareholder, I’d get out of the stock right now.

Posted by on July 21st, 2011 at 8:53 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.